Describe the concept of trade creation.

Describe the concept of trade creation.

Trade creation refers to the economic benefit that arises when a regional trade agreement (RTA) or a removal of trade barriers leads to the creation of new trade flows between member countries. It occurs when the RTA allows member countries to specialize in the production of goods and services in which they have a comparative advantage, leading to increased efficiency and lower production costs. As a result, trade creation leads to an expansion of trade volume, increased consumer welfare, and overall economic growth for the participating countries.