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On Intertemporal General-Equilibrium Reallocation Effects of Europe's Move to a Single Market

  • Mercenier, J.
  • Akitoby, B.

This paper provides intertemporal general-equilibrium investigation of the welfare and employment consequences of Europe’s move to a unified market, using a multicountry, multisector applied model with imperfect competition, increasing returns-to-scale, and product differentiation at the firm level. The oligopolistic game between firms is assumed to be Nash in output. In the short-term, market imperfections (such as oligopolistic profits and wage rigidities) may exist. These imperfections vanish in the long run, characterized by stock-flow equilibrium consistent with steady-state growth. “Europe 1992” is interpreted as the elimination of the possibility for oligopolistic firms to price-discriminate between client countries within the European Community. Investigations are performed under alternative wage determination mechanisms (flexible wages v.s. wage indexation). We show, among other things, that the gains remain modest when dynamic effects are taken into account, and that all member countries are not sure to gain from European integration in the long run.

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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 9401.

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Length: ; 39 pages
Date of creation: 1994
Date of revision:
Handle: RePEc:mtl:montde:9401
Contact details of provider: Postal: CP 6128, Succ. Centre-Ville, Montréal, Québec, H3C 3J7
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  1. Jean Mercenier, 1994. "Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition," Staff Report 183, Federal Reserve Bank of Minneapolis.
  2. Haaland, Jan I. & Wooton, Ian, 1991. "Market Integration, Competition and Welfare," CEPR Discussion Papers 574, C.E.P.R. Discussion Papers.
  3. Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers 374, California Davis - Institute of Governmental Affairs.
  4. Mercenier, J. & Schmitt, N., 1992. "Sunk Costs, Free-Entry Equilibrium and Trade Liberalization in Applied General Equilibrium : Implications for 'Europe 1992'," Discussion Papers dp92-16, Department of Economics, Simon Fraser University.
  5. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December.
  6. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 151-66, December.
  7. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November.
  8. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen.
  9. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, vol. 32(7), pages 1501-1525, September.
  10. Manning, Alan, 1991. "Multiple Equilibria in the British Labour Market: Some Empirical Evidence," CEPR Discussion Papers 540, C.E.P.R. Discussion Papers.
  11. Haaland, Jan I. & Norman, Victor D, 1992. "Global Production Effects of European Integration," CEPR Discussion Papers 669, C.E.P.R. Discussion Papers.
  12. Mercenier, J., 1992. "Can '1991' Reduce Unemployment in Europe? On Welfare and Employment Effects of Europe's Move to Single Market," Cahiers de recherche 9222, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  13. Gasiorek, Michael & Smith, Alasdair & Venables, Anthony J, 1992. "`1992': Trade and Welfare; A General Equilibrium Model," CEPR Discussion Papers 672, C.E.P.R. Discussion Papers.
  14. Robert GARY-BOBO, 1988. "Equilibre général et concurrence Imparfaite : un tour d’horizon," Discussion Papers (REL - Recherches Economiques de Louvain) 1988012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  15. Burniaux, Jean Marc & Waelbroeck, Jean, 1992. "Preliminary results of two experimental models of general equilibrium with imperfect competition," Journal of Policy Modeling, Elsevier, vol. 14(1), pages 65-92, February.
  16. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
  17. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
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