Recent moves towards regional integration in Europe have been characterized by their sequential nature: time has become an important dimension of regional integration. In Discussion Paper No. 1070, Research Affiliate Philippe Martin extends previous work on optimal sequencing in the context of two-speed monetary unification in Europe. He develops a theory of sequential regional integration and applies it to the specific question of the integration of the Central and East European Countries' (CEECs) into the European Union (EU), asking how the timing of integration may affect the final outcome.

In this model, the motivation to integrate the CEECs comes from the harmonization of policies to attract industries. Without integration, European countries will try inefficiently to protect their industries. Because of the transfers implied by the Common Agricultural Policy and structural policies, the EU will delay enlargement until the CEECs have converged adequately. But at that point, the CEECs might prefer to stay outside the EU and attract industries by offering them more generous protection than the EU. Such timing may be inefficient ex ante for all countries because it may prevent full European integration in the long run, inducing firms to relocate outside of the EU and governments in the EU and the CEECs to protect industry. During the transition, all countries benefit from regional integration among the CEECs.

A Sequential Approach to Regional Integration: The European Union and Central and Eastern Europe
Philippe Martin

Discussion Paper No. 1070, November 1994 (IT)