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On intertemporal general-equilibrium reallocation effects of Europe's move to a single market

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  • Jean Mercenier
  • Bernardin Akitoby

Abstract

This paper provides intertemporal general-equilibrium investigation of the welfare and employment consequences of Europe’s move to a unified market, using a multicountry, multisector applied model with imperfect competition, increasing returns-to-scale, and product differentiation at the firm level. The oligopolistic game between firms is assumed to be Nash in output. In the short-term, market imperfections (such as oligopolistic profits and wage rigidities) may exist. These imperfections vanish in the long run, characterized by stock-flow equilibrium consistent with steady-state growth. “Europe 1992” is interpreted as the elimination of the possibility for oligopolistic firms to price-discriminate between client countries within the European Community. Investigations are performed under alternative wage determination mechanisms (flexible wages v.s. wage indexation). We show, among other things, that the gains remain modest when dynamic effects are taken into account, and that all member countries are not sure to gain from European integration in the long run.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 87.

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Date of creation: 1993
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Handle: RePEc:fip:fedmem:87

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Keywords: European Economic Community;

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References

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  1. Haaland, Jan I. & Norman, Victor D, 1992. "Global Production Effects of European Integration," CEPR Discussion Papers 669, C.E.P.R. Discussion Papers.
  2. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November.
  3. Haaland, J.I. & Wooton, I., 1991. "Market Integration, Competition, and Welfare," Papers 499, Stockholm - International Economic Studies.
  4. Mercenier, J., 1992. "Can '1991' Reduce Unemployment in Europe? on Welfare and Employment Effects of Europe's Move to Single Market," Cahiers de recherche 9222, Universite de Montreal, Departement de sciences economiques.
  5. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  6. Mercenier, J. & Schmitt, N., 1992. "Sunk Costs, Free-Entry Equilibrium and Trade Liberalization in Applied General Equilibrium : Implication for "Europe 1992"," Cahiers de recherche 9235, Universite de Montreal, Departement de sciences economiques.
  7. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, vol. 32(7), pages 1501-1525, September.
  8. Richard Harris, 1983. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," Working Papers 524, Queen's University, Department of Economics.
  9. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-41, March.
  10. MERTENS, Yves & GINSBURGH, Victor, . "Product differentiation and price discrimination in the European Community: The case of automobiles," CORE Discussion Papers RP -672, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Manning, Alan, 1991. "Multiple Equilibria in the British Labour Market: Some Empirical Evidence," CEPR Discussion Papers 540, C.E.P.R. Discussion Papers.
  12. Gasiorek, Michael & Smith, Alasdair & Venables, Anthony J., 1992. "`1992': Trade and Welfare; A General Equilibrium Model," CEPR Discussion Papers 672, C.E.P.R. Discussion Papers.
  13. Jean Mercenier, 1994. "Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition," Staff Report 183, Federal Reserve Bank of Minneapolis.
  14. repec:fth:simfra:92-16 is not listed on IDEAS
  15. Robert GARY-BOBO, 1988. "Equilibre général et concurrence Imparfaite : un tour d’horizon," Discussion Papers (REL - Recherches Economiques de Louvain) 1988012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  16. Burniaux, Jean Marc & Waelbroeck, Jean, 1992. "Preliminary results of two experimental models of general equilibrium with imperfect competition," Journal of Policy Modeling, Elsevier, vol. 14(1), pages 65-92, February.
  17. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen.
  18. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
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Citations

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Cited by:
  1. Mercenier, Jean & Yeldan, Erinc, 1999. "A Plea For Greater Attention on the Data in Policy Analysis," Journal of Policy Modeling, Elsevier, vol. 21(7), pages 851-873, December.
  2. Einar Bowitz & Taran Fæhn & Leo Grünfeld & Knut Moum, 1997. "Can a Wealthy Economy Gain from an EU Membership? Adjustment Costs and Long Term Welfare Effects of Full Integration—The Norwegian Case," Open Economies Review, Springer, vol. 8(3), pages 211-231, July.

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