When does trade diversion occur in the context of economic integration?

Show Answers

When a nation transitions from self-sufficiency to engaging in free tradeWhen forming a customs union lowers trade expenses by harmonizing regulationsWhen economic integration causes sourcing to shift towards a member country with lower production costsWhen economic integration causes sourcing to move from a more cost-efficient non-member country to a higher-cost member country

Explanation

Trade diversion happens when economic integration leads to a change in sourcing from a lower-cost non-member country to a higher-cost member country, which may increase overall costs despite preferential trade agreements.