Open AccessOutsiders in economic integration
Author(s) -
Manzocchi Stefano,
Ottaviano Gianmarco I. P.
Publication year - 2001
Publication title -
economics of transition
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 51
eISSN - 1468-0351
pISSN - 0967-0750
DOI - 10.1111/1468-0351.00074
Subject(s) - economics , insider , convergence (economics) , welfare , per capita income , investment (military) , market integration , economic integration , divergence (linguistics) , per capita , point (geometry) , macroeconomics , international economics , economic system , market economy , population , linguistics , philosophy , demography , geometry , mathematics , sociology , politics , political science , law
We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration between two advanced insider countries on their own welfare as well as on the welfare of an outsider transition economy. A first point is that, since convergence in per capita income levels depends on relative market access and local market size, piece‐wise integration causes insider‐outsider divergence. Nonetheless, outsiders can gain in absolute terms if integration fosters the global growth rate. We also show that exclusion from a regional agreement and on‐going transition have unpredictable joint effects on the structural adjustment, which might even exhibit a swinging behaviour. Such swings may imply large adjustment costs, which can be reduced by careful integration design. With this respect, the asymmetric phasing‐out of trade barriers built into the Europe Agreements seems to work in the right direction. Finally, we point out that the predictions of the model in terms of direct investment and terms‐of‐trade dynamics are broadly consistent with some actual developments in transition economies.