Citation

Discussion Paper Details

Please find the details for DP6847 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Who is Against a Common Market?

Author(s): Giovanni Facchini and Cecilia Testa

Publication Date: June 2008

Keyword(s): Economic Integration, Factor Mobility and Political Economy

Programme Area(s): International Trade and Regional Economics

Abstract: 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-�-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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6847

Bibliographic Reference

Facchini, G and Testa, C. 2008. 'Who is Against a Common Market?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6847