|
At a lunchtime meeting on 15 April, Victor Norman presented results of recent research on the effects of completing the European Community's single-market programme and its extension to the EFTA member countries. Norman is Professor of International Economics at the Norwegian School of Economics and Business Administration, Bergen, and a Research Fellow in CEPR's International Trade programme. His remarks were based on his CEPR Discussion Paper No. 669, `Global Production Effects of European Integration', written jointly with Jan Haaland. Financial support for the research presented in this paper was provided by the Norwegian Research Council for Science and Technology (NTNF) and the Norwegian Research Council for Applied Social Science Research (NORAS). The paper was produced as part of CEPR's research programme on The Consequences of `1992' for International Trade, supported by a grant from the Commission of the European Communities under its SPES programme, which also provided financial support for the meeting. The results presented by Professor Norman were his own, however, and not those of the above organizations nor of CEPR, which takes no institutional policy positions.Norman began by defining European integration as the removal of both formal and informal trade barriers and the abolition of inter-country price discrimination, which requires the successful implementation of not only trade and industrial policies but also competition policy. Norman presented a general equilibrium model of five world regions the EC, EFTA, Japan, the US and the rest of the world with initially segmented markets and imperfectly competitive product markets, which he used to assess the effects of reducing real trade costs (with the simplification of border formalities and the harmonization of product standards, etc.) and moving to an integrated European market. Dividing production into traded and non-traded goods, he focused on industrial tradables, which account for about one-third of GDP, disaggregated into twelve industries in three main groups: capital intensive, labour intensive and `skill intensive' mainly engineering. Data on their current inputs and markets indicate that there are substantial unexploited economies of scale for all industries within Europe, which tend to be largest for the skill-intensive industries. Norman considered two cases: completion of the single-market programme by the European Community alone, and its extension to include the EFTA countries through the establishment of a European Economic Area (EEA). In both cases, the net real income effects on the US and Japan are negligible, as positive spillovers from European real income gains are offset by the negative effects of Europe's increased competitiveness. These have nothing to fear from a `Fortress Europe', but integration will bring a real income gain equivalent to some 1.9% of expenditure on traded goods to the European Community. If the Community completes its single-market programme without the EFTA countries, the latter will suffer a significant terms-of-trade deterioration and a real income loss equivalent to 0.4% of such expenditures; but the forgone gains of not participating are much greater. Implementing the EEA accord will bring the EFTA countries a real income gain of 3.3%. Norman noted that these results concur with Gasiorek, Smith and Venables's findings that within the Community integration brings greater gains to small, peripheral countries than to Germany or Italy. Norman then turned to the effects on Europe's industrial structure, which indicated that European integration will induce a significant reallocation of resources into engineering industries. This accords remarkably well with the original reasons for the establishment of a single market: to foster economic growth by shifting resources into the high-R&D, high- growth part of the industrial sector. For the EFTA countries, these effects depend critically on their participation in the EEA accord, without which they will be reversed. In conclusion, Norman noted two directions in which to extend this research. First, services and non-tradables should be included, since integration is expected to have large effects on these sectors, although the poor data for them make modelling very difficult. Second, more attention should be devoted to the long-term relationships between R&D, industrial structure and growth. |