Jacob Viner's partial equilibrium analysis, based upon trade creation and trade diversion effects, is undoubtedly useful but is only of elementary character. The writers like R.G. Lipsey and J. Vanek have analysed the theory of customs union in the general equilibrium framework. 1. The Lipsey Model of Customs Union: In the partial equilibrium approach, Jacob Viner pointed out that trade [...]
In this article we will discuss about:- 1. Dynamic Effects of Customs Union 2. Theory of Customs Union as the Theory of Second Best 3. Intra-Industry Trade and Customs Union. Dynamic Effects of Customs Union: The static effects of customs union are- (i) trade- creation and (ii) trade-diversion. The static effects are basically concerned with reallocation of production and consumption. [...]
A customs union results in the abolition of tariffs among the member nations while at the same time having a common tariff against the rest of the world. The formation of a customs union involves certain problems. Unless a satisfactory and agreed mechanism is evolved to overcome these problems, it cannot work in an efficient manner. The main problems faced [...]