Chapter 3: Theory of customs unions
AbstractChapter 3 overviews issues related to customs unions and free trade areas, which are the most rigorously developed part of the theory of international economic integration. The analysis is carried out through static and dynamic approaches, as well as in partial and general equilibrium frameworks. Increased competition on a secured and enlarged market by means of integration, specialisation and returns to scale receives special treatment, as these are the most important dynamic effects. A discussion of adjustment costs suggests that they do not always represent a serious barrier to integration, especially in the medium and long run.
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