If nations have very similar factor endowments, for example, or if their incomes are very dissimilar, then the potential to gain from trade creation may be quite low. If the members of the PTA are not among the least-cost producers, or it external trade barriers are left relatively high, then trade diversion costs may be quite high. A worst-case scenario, for example, would involve nations that are inefficient producers relative to the world market and that have similar comparative advantages. If the external trade barriers are set very high, then the effect of the PTA is to push them towards autarky as a region, not towards the benefits of freer trade. Trade creation and trade diversion are static effects of the changing pattern of trade.
Dynamic gains are improvements in efficiency that increase the rate of economic growth over time.
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