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Integration, Reading 6: European Integration at the Crossroads: A Review…
Integration
OCA
the importance of economic integration and of real convergence among the candidates to monetary integration
macroeconomic shocks were seen as less likely because of the elimination of shocks induced by national central banks
it was hoped that shocks would become less asymmetric because the introduction of a single currency would induce real convergence by boosting intraindustry trade
the exchange rate instrument had anyway lost its usefulness as a tool for offsetting shocks due to the liberalization of capital controls
economic integration
as process
measures designed to abolish discrimination between economic units belonging to different national states
as a state of affairs
absence of various forms of discrimination between national economies
attributes of complete economic integration
FTA
tariffs are eliminated between member countries
commercial motives
a customs union
member states establish a common external tariff
a common market
restrictions on factor movements are eliminated
an economic union
some degree of harmonization of national economic policies, in order to remove discrimination that was due to disparities in these policies
politically driven
complete economic integration
the unification of monetary, fiscal, social, and countercyclical policies” and “the setting-up of a supra-national authority whose decisions are binding for the member states
politically driven
EU case
Deepening
trade policy, agricultural policy, transport policy, competition policy
monetary policy, energy policy, environment policy, development policy, and research policy
Single market, 31 December, 1992
since specialization was supposed to increase, interindustry trade would also increase
EEC
Southern Enlargement
a small “periphery” and a large “center.”
agriculture
manufacturing
U-shaped effect
lowering of trade barriers results in the contraction of manufacturing production in the periphery to the benefit of the center
as trade barriers become negligible, market size becomes less relevant and manufacturing production moves back to the periphery that enjoys lower wages
causal relationship between trade liberalization and income convergence inside the European Union
the factor price equalization theorem
social harmonization
The avoidance of depressions
the maintenance of full employment
the regulation of cartels and monopolies
Problem
Social dumping
The fear of cheap labor
Widening
27 members
Southern enlargement
a North–South, center–periphery divide
the fear by peripheral countries that their nascent industrial activity would migrate from their region to the EU core in order to benefit from agglomeration economies
the equal fear by Northern workers of “social dumping” due to lower wages and social conditions in the South
Effects
domino effect
EU membership “had an economically and statistically significant effect on trade among members”
spread effects
a situation when production allocated from economic core to periphery
developed regions would also benefit the backward areas
better-qualified labor, infrastructure
the transmission of technological knowledge
a rising proportion of mobile external economies
The agglomeration effects
favor “prosperous regions located near the European economic center at the expense of regions situated at the periphery of the area
static effect
the concepts of trade creation and trade diversion
Trade integration would reduce differences in factor prices within a customs union
dynamic effect
the size of the market is an important determinant of economic growth
By expanding market size, economic integration would result in large-scale economies leading to gains in productivity
‘Mundell trilemma’
Three atribues
fixed exchange rate system
free flow of capital
monetary autonomy
Treaty of Maastricht
implementation with the introduction of the euro on January 1, 1999
monetary union
limited provisions on economic coordination and fiscal rules
was less about creating a single currency than a stable common currency
inflation, exchange rates, interest rates, and public finance
Views of trade
the traditional view
tariff reductions among industrial countries would lead to interindustry specialization, arguing that this would only happen in the case of standardized products
intraindustry specialization
welfare effects of increased exchange of consumer goods may consist largely of improvements in the efficiency of exchange
specialization in narrower ranges will permit the exploitation of economies of scale through the lengthening of production runs
Reading 6: European Integration at the Crossroads: A Review Essay on the 50th Anniversary of Bela Balassa’s Theory of Economic Integration, Andre Sapir
Student: Mamedova Asel