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| Tekijä: | Facchini, G. Testa, C. |
| Otsikko: | Who is against a common market? |
| Lehti: | Journal of the European Economic Association
2009 : SEP, VOL. 7:5, p. 1068-1100 |
| Asiasana: | EEC political economy demand supply IMPORTS exporting integration |
| Kieli: | eng |
| Tiivistelmä: | This article builds a theory of the endogenous formation of a common market in a three-country, two-factor political economy model. It is assumed that Home and Foreign implement nondiscriminatory policies toward international factor flows in order to maximize the domestic median voter's welfare. Then the two countries hold referenda on a common market initiative. This leads to the removal of the pre-existing policies for factor flows between the member countries while no coordination is imposed on policies vis-a-vis the Rest of the World. The results reveal that the returns on factors moving between the members are more likely to increase the larger is the import demand of one country relative to the factor supply of the exporting partner. It is also found that factors that do not relocate are more likely to see their returns decrease when flows are large and import demands are inelastic. Some factors must continue to experience enhanced protection when the integration process is completed for the common market to emerge as an equilibrium. |
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