Which statement about regional economic integration is true?

Which statement about regional economic integration is true?

• A. It always increases national sovereignty.
• B. It can lead to trade diversion.
• C. It eliminates all labor shifts.
• D. It has no impact on political cooperation.

Answer: (B)

Regional economic integration changes how trade flows by reducing barriers among member economies, but it can also reshape competition in ways that aren’t always globally efficient. The idea of trade diversion explains why this happens: when countries in a bloc grant each other preferential access, imports may shift from cheaper producers outside the bloc to more expensive producers inside the bloc simply because the internal tariff or preference makes them more attractive. So even if a non-member country could produce a good more cheaply, trade may be redirected to a member producer to take advantage of the preferential arrangement. That’s why this statement is true. The other options are less accurate because integration doesn’t necessarily increase national sovereignty (it often transfers some policy control to the regional level), doesn’t automatically eliminate labor shifts (movement of workers can still occur or be limited depending on the form of integration), and typically does affect political cooperation (it often enhances it, though not guaranteed).

Regional economic integration changes how trade flows by reducing barriers among member economies, but it can also reshape competition in ways that aren’t always globally efficient. The idea of trade diversion explains why this happens: when countries in a bloc grant each other preferential access, imports may shift from cheaper producers outside the bloc to more expensive producers inside the bloc simply because the internal tariff or preference makes them more attractive. So even if a non-member country could produce a good more cheaply, trade may be redirected to a member producer to take advantage of the preferential arrangement. That’s why this statement is true. The other options are less accurate because integration doesn’t necessarily increase national sovereignty (it often transfers some policy control to the regional level), doesn’t automatically eliminate labor shifts (movement of workers can still occur or be limited depending on the form of integration), and typically does affect political cooperation (it often enhances it, though not guaranteed).