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Outsiders In Economic Integration: The Case of a Transition Economy

  • Manzocchi, Stefano
  • Ottaviano, Gianmarco

We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration among two advanced insider countries on their own welfare as well as on the welfare of an outsider transition economy. A first point is that, since convergence in per capita income levels depends on relative market access and local market size, piece-wise integration causes insider-outsider divergence. Nonetheless, outsiders can gain in absolute terms if integration fosters the global growth rate. We also show that exclusion from a regional agreement and ongoing transition have unpredictable joint effects on the structural adjustment, which might even exhibit a swinging behaviour. Such swings may imply large adjustment costs, which can be reduced by careful integration design. In this respect, the asymmetric phasing-out of trade barriers built into the Europe Agreements seems to work in the right direction.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2385.

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Date of creation: Feb 2000
Date of revision:
Handle: RePEc:cpr:ceprdp:2385
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  1. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
  2. G Alogoskoufis & R Portes & H Rey, 1998. "The Emergence of the Euro as an International Currency," CEP Discussion Papers dp0388, Centre for Economic Performance, LSE.
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  7. Richard E. Baldwin & Rikard Forslid & Jan I. Haaland, 1996. "Investment Creation and Diversion in Europe," The World Economy, Wiley Blackwell, vol. 19(6), pages 635-659, November.
  8. Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, vol. 43(2), pages 281-302, February.
  9. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  10. Brenton, Paul & Di Mauro, Francesca, 1999. "The Potential Magnitude and Impact of FDI flows to CEECs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 59-74.
  11. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  12. C Grafe & C Wyplosz, 1998. "The Real Exchange Rate in Transition Economies," CEP Discussion Papers dp0395, Centre for Economic Performance, LSE.
  13. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
  14. Gianmarco I. P. Ottaviano, 1996. "The Location Effects of Isolation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(III), pages 427-440, September.
  15. Gianmarco I. P. Ottaviano & Diego Puga, 1998. "Agglomeration in the Global Economy: A Survey of the 'New Economic Geography'," The World Economy, Wiley Blackwell, vol. 21(6), pages 707-731, 08.
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