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 [...]
Before J. Viner developed the theory of customs union, there was a general belief that customs union raises the level of welfare as customs union is a movement towards freer trade at least within a specific area. Viner pointed out that the conclusion concerning increase in welfare due to customs union is not necessarily true. He analysed the production effects [...]