European Integration
A wider single market

The completion of the European Community's single-market programme and its extension to include the current EFTA member countries in the European Economic Area are expected to result in significant changes to global patterns of production and trade. In Discussion Paper No. 669, Research Fellow Victor Norman and Research Affiliate Jan Haaland develop a computable general equilibrium model of world trade, with four world regions, twelve traded goods, one non-tradable aggregate and three non-traded factors of production. Eleven of the traded goods industries are imperfectly competitive. They calibrate their model to 1985 data: assuming that markets are initially segmented, they simulate the effects of reduced trade costs and fully integrated markets both for the Community alone and for the proposed EEA as a whole. They find that the effects of this integration on European and in particular EFTA member countries may be substantial, but Europe's integration is likely to have only marginal effects on the rest of the world, and it poses no threat to Japan or the US. The effects within Europe result from welfare gains and changes in industrial structure towards more skill- intensive sectors.

Victor Norman presented this paper at an April lunchtime meeting, reported more fully in issue no. 50/51 of this Bulletin.