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On the Extent of Economic Integration: A Comparison of E.U. Countries and U.S. States

  • Harry P. Bowen

    ()

    (McColl School of Business, Queens University of Charlotte)

  • Haris Munandar

    ()

    (Bureau of Economic Research, Bank Indonesia)

  • Jean-Marie Viaene

    ()

    (Erasmus University Rotterdam, Tinbergen Institute and CESifo)

European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is believed to be the benchmark model of complete economic integration and often serves as the basis for comparison as regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than the E.U. correct? The objective of this paper is to examine the theoretical and empirical premises of such beliefs. We derive three theoretical predictions about the distribution of output and factor stocks that will arise among members of a fully integrated economic area (IEA) in which goods and factors are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period from 1965 to 2000. The empirical results convincingly support each theoretical prediction and in particular indicate that, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states.

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Paper provided by McColl School of Business, Queens University of Charlotte in its series Discussion Paper Series with number 2008-01.

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Length: 38 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:msb:wpaper:2008-01
Contact details of provider: Web page: http://mccoll.queens.edu/

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  1. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.
  2. Xavier Gabaix & Yannis M. Ioannides, 2003. "The Evolution of City Size Distributions," Discussion Papers Series, Department of Economics, Tufts University 0310, Department of Economics, Tufts University.
  3. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  4. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
  5. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Capital markets integration, growth and income distribution," European Economic Review, Elsevier, vol. 46(2), pages 301-327, February.
  6. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
  7. Bowen, H. & Sleuwaegen, L., 2004. "European integration: the third step," Vlerick Leuven Gent Management School Working Paper Series 2004-19a, Vlerick Leuven Gent Management School.
  8. Gasper A. Garofalo & Steven Yamarik, 2002. "Regional Convergence: Evidence From A New State-By-State Capital Stock Series," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 316-323, May.
  9. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  10. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
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