Question

List static and dynamic effect of free trade?

Answer 1

The formation of the theory of economic integration and, in particular, customs unions is associated with the name of the Canadian scientist Jacob Weiner. The analysis is based on a comparison of trade between countries in the conditions of each of them having their own customs tariff and in the conditions of concluding an agreement on a customs union between them, which eliminates tariffs in mutual trade. In accordance with Weiner's theory of the customs union, as a result of its creation, two types of effects arise in the economy:

static effects - economic consequences that appear immediately after the creation of a customs union as its immediate result;

dynamic effects - economic consequences that manifest themselves at later stages of the functioning of the customs union.

Among the static effects, the most important is the trade creation and trade rejection effects.

As a result of the creation of a customs union, a situation may arise when goods that were traditionally purchased on the domestic market will turn out to be more expensive than the same goods produced abroad. If, before the creation of the customs union, local producers were protected by import duties, which made it unprofitable to purchase goods abroad, then after their abolition within the framework of the customs union, foreign goods turned out to be cheaper than local ones, and consumers began to buy them from abroad. As a result, there was an import flow of goods, which did not exist before, and resources began to be used more efficiently.