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Product standards, imperfect competition and completion of the market in the European Union

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Author Info

  • Harrison, Glenn
  • Rutherford, Thomas
  • Tarr, David
  • DEC

Abstract

The authors model the static and steady-state effects on trade, production, and market structure of completion of the European Union's (EU's) internal market. The impetus for change comes from the removal of border costs and the costs of producing to different national standards. It also comes from consumers'greater ability to substitute among the products of producers in different EU countries, once the European Union adopts its program on standards. In the analysis of the static scenario, removing border costs and the costs of supply-side standards improves the welfare of EU countries by only about 0.5 percent of Gross Domestic Product (GDP). Results vary greatly across the countries of the European Union, however, because the benefits to a country are roughly proportional to its share of intra-EU trade in its GDP. This is the first model to identify these countrydifferences because of the greater country disaggregation. The additional effect of the program of standards on consumer demand elasticities increases the competition and reduces markups in imperfectly competitive industries. Then there are additional gains from rationalization, as well as consumer efficiency gains in imperfectly competitive sectors, that result in an increase in the estimated gains to about 1.2 percent of GDP (again with wide differences across EU countries). The steady-state results let the capital stock in each country adjust to its new higher equilibrium value, which acts as an additional endowment of capital, allowing the European Union to produce a higher level of income. The gains to the European Union then rise to about 2.6 percent of GDP.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1293.

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Date of creation: 30 Apr 1994
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Handle: RePEc:wbk:wbrwps:1293

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Related research

Keywords: Environmental Economics&Policies; Access to Markets; Markets and Market Access; Health Economics&Finance; Economic Theory&Research;

References

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  1. Kindleberger, Charles P, 1983. "Standards as Public, Collective and Private Goods," Kyklos, Wiley Blackwell, vol. 36(3), pages 377-96.
  2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
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Cited by:
  1. Anders Hoffmann, 2000. "The gains from partial completion of the single market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(4), pages 601-630, December.
  2. De Santis, Roberto A., 1997. "Why exporting countries agree voluntary export restraints: The oligopolistic power of the foreign supplier," Kiel Working Papers 841, Kiel Institute for the World Economy.
  3. Erno Zalai, 1998. "Computable Equilibrium Modelling and Application to Economies in Transition," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 9804, Centre for Economic Reform and Transformation, Heriot Watt University.
  4. Helge Sanner, 2003. "Imperfect Goods and Labor Markets, and the Union Wage Gap," Volkswirtschaftliche Diskussionsbeiträge, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät 55, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
  5. Maryla Maliszewska, 2004. "EU Enlargement: Benefits of the Single Market Expansion for Current and New Member States," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0273, CASE-Center for Social and Economic Research.

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