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1Chapter10EconomicIntegration:CustomsUnionsandFreeTradeAreastheformofeconomicintegrationtrade-creatingcustomsunionstrade-divertingcustomsunionsstaticwelfareeffectsofcustomsunionsdynamicbenefitsfromcustomsunions210.1introductioneconomicintegration3theformofeconomicintegration4nonononoPreferentialTradeArrangementsyesnononoUnifytheeconomicpoliciesofmembersyesyesnonoFreemovementoflaborandcapitalamongmembersyesyesyesnoHarmonizetradepoliciestowardnonmemberyesyesyesyesNobarriersontradeamongmembersEconomicUnionCommonMarketCustomsUnionFreeTradeAreacharacter510.2trade-creatingcustomsunions10.2Atrade-creation10.2BIllustrationofatrade-creatingcustomsunionFigure10.1:atrade-creatingcustomsunion610.3trade-divertingcustomsunions10.3Atrade-divertion10.3BIllustrationofatrade-divertingcustomsunionFigure10.2:atrade-divertingcustomsunion710.4Bconditionsmorelikelytoleadtoincreasedwelfare¾¾¾¾¾¾810.5dynamicbenefitsfromcustomsunions¾Increasedcompetition¾Economiesofscale¾Stimulustoinvestment¾Betterutilizationofeconomicresources