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Who is Against a Common Market?


  • Giovanni Facchini

    (University of Milan, University of Essex, LdA, CEPR and CES-Ifo)

  • Cecilia Testa

    (University of London and STICERD - LSE)


This paper develops a theory of the endogenous formation of a common market in a three-country, two-factor political economy model. In the status quo, Home and Foreign implement non-discriminatory policies towards international factor flows, as to maximize the domestic median voter\'s welfare. Each of the two countries simultaneously holds then a referendum on a Common Market initiative leading to the removal of the pre-existing policies for factor flows occurring between the member countries, while no coordination is imposed on policies vis-µa-vis the rest of the world. Several interesting results emerge. In a common market, factors moving between the members are more likely to gain, the bigger is the import demand of one country as compared to the factor supply of the exporting partner. Factors which instead do not relocate are more likely to see their return decrease when flows are big and import demands are inelastic. Importantly, for the common market to emerge as an equilibrium, some factors must continue to experience enhanced protection when the integration process is completed. This result highlights the potential tension between social desirability and political feasibility of the integration process.

Suggested Citation

  • Giovanni Facchini & Cecilia Testa, 2008. "Who is Against a Common Market?," Development Working Papers 240, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:240

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    References listed on IDEAS

    1. Facchini, Giovanni & Willmann, Gerald, 2005. "The political economy of international factor mobility," Journal of International Economics, Elsevier, vol. 67(1), pages 201-219, September.
    2. Anna Maria Mayda, 2006. "Who Is Against Immigration? A Cross-Country Investigation of Individual Attitudes toward Immigrants," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 510-530, August.
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    12. Giovanni Facchini & Oliver Lorz & Gerald Willmann, 2006. "Asylum seekers in Europe: the warm glow of a hot potato," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(2), pages 411-430, June.
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    Cited by:

    1. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2007. "Do Interest Groups Affect Immigration?," IZA Discussion Papers 3183, Institute for the Study of Labor (IZA).
    2. Facchini, Giovanni & Silva, Peri & Willmann, Gerald, 2013. "The customs union issue: Why do we observe so few of them?," Journal of International Economics, Elsevier, vol. 90(1), pages 136-147.
    3. Bougheas, Spiros & Nelson, Doug, 2013. "On the political economy of high skilled migration and international trade," European Economic Review, Elsevier, vol. 63(C), pages 206-224.
    4. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2011. "Do interest groups affect US immigration policy?," Journal of International Economics, Elsevier, vol. 85(1), pages 114-128, September.
    5. Giovanni Facchini & Anna Maria Mayda, 2009. "The Political Economy of Immigration Policy," Human Development Research Papers (2009 to present) HDRP-2009-03, Human Development Report Office (HDRO), United Nations Development Programme (UNDP), revised Apr 2009.
    6. Pierre M. Picard & Tim Worrall, 2016. "Is a Policy of Free Movement of Workers Sustainable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 718-754, October.

    More about this item


    Economic Integration; Factor Mobility; Political Economy;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism


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