On the Extent of Economic Integration: A Comparison of EU Countries and US States
AbstractThis discussion paper led to a forthcoming publication in Journal of Regional Science entitled 'Are EU Countries less Integrated than US States? Theory and Evidence'. European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is considered the benchmark of complete economic integration and is often the basis for comparison regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than E.U. member states correct? To address this question, this paper first develops three theoretical predictions about the distribution of output and factors that would arise among members of a fully integrated economic area in which goods, capital and labor are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period 1965 to 2000. The empirical results convincingly support each theoretical prediction. Hence, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-009/2.
Date of creation: 07 Jan 2010
Date of revision: 04 Jul 2011
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Economic integration; capital mobility; factor price equalization; Brownian motion; Zipf’s law;
Other versions of this item:
- Harry P. Bowen & Haris Munandar & Jean-Marie Viaene, 2008. "On the Extent of Economic Integration: A Comparison of E.U. Countries and U.S. States," Discussion Paper Series 2008-01, McColl School of Business, Queens University of Charlotte.
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- F15 - International Economics - - Trade - - - Economic Integration
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-EEC-2010-05-15 (European Economics)
- NEP-MAC-2010-05-15 (Macroeconomics)
- NEP-SEA-2010-05-15 (South East Asia)
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