_________ is said to exist when the formation of a regional trading group leads to an expansion of trade above pregroup levels ?
Correct answer: A. trade creation
- A. trade creation
- B. trade diversion
- C. trade exclusion
- D. trade distortion
Explanation
Trade creation occurs when integration replaces costly domestic production with lower-cost imports from a member country, increasing trade beyond the pre-integration level. Trade diversion instead shifts imports away from an efficient nonmember supplier.
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