A perception of declining EU competitiveness has intensified calls for structural reforms within the EU. This paper examines recent evidence on changes in relative EU competitiveness and considers the observed changes in relation to the evolving competitive environment facing EU firms during the past two decades. Our analysis suggests that recent declines in EU competitiveness reflect an adjustment (or lack thereof) within the EU in response to an evolutionary “Third Step†in the process of EU integration: global market integration. We find that, starting from the mid-1990s, the EU began to face unprecedented increases in external sources of competition. The rising competition from external sources has created pressures for EU firms to alter their organizational and product market strategies to meet the challenge of a globally integrating market. While many leading EU firms are found to have responded to this challenge, EU firms remain hampered by anachronistic EU product and labor market regulations. The growing calls for structural reform therefore reflect the increased external competitive pressure on EU firms as they attempt to respond to growing global competition and to thereby strengthen their global competitiveness.
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Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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