Latvia and the World's Biggest Trade Blocks

The economic effects of regional agreements are scale and competition effects. Removal of trade barriers is like a market enlargement, as separate national markets move toward integration in a regional market. This allows firms to benefit from greater scale and attracts investment projects for which market size is important. Removing barriers also forces firms from different member countries into closer competition with each other, possibly inducing them to make efficiency improvements. Secondly the economic change is also in terms of trade and location. The preferential reduction in tariffs within a regional agreement will induce purchasers to switch demand toward supply from partner countries, at the expense of both domestic production and imports from non-members. This is trade creation and trade diversion. Governments will lose tariff revenue, and the overall effect on national income may be positive or negative, depending on the costs of alternative sources of supply and on trade policy toward nonmember countries.…