On the Extent of Economic Integration: A Comparison of EU Countries and US States

Harry Bowen (), Haris Munandar and Jean-Marie Viaene
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Jean-Marie Viaene: Erasmus University Rotterdam, and CESifo

No 10-009/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in the Journal of Regional Science , 2011, 51(4), 653-677.

European economic integration is commonly believed to be incomplete, and that further reforms are needed. In this context, the union of U.S. states is considered the benchmark of complete economic integration and is often the basis for comparison regarding the extent of E.U economic integration. Yet, with low trade barriers and with productive factors at least notionally mobile across E.U. countries, is the belief that U.S. states are more integrated than E.U. member states correct? To address this question, this paper first develops three theoretical predictions about the distribution of output and factors that would arise among members of a fully integrated economic area in which goods, capital and labor are freely mobile and policies are harmonized. These theoretical predictions are then empirically tested using data on the output and factor stocks of 14 E.U. member states and the 51 U.S. states (includes District of Columbia) for the period 1965 to 2000. The empirical results convincingly support each theoretical prediction. Hence, contrary to popular belief, the extent of E.U. economic integration is not statistically different from that among U.S. states.

Keywords: Economic integration; capital mobility; factor price equalization; Brownian motion; Zipf’s law (search for similar items in EconPapers)
JEL-codes: E13 F15 F21 F22 F4 O57 (search for similar items in EconPapers)
Date: 2010-01-07, Revised 2011-07-04
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Related works:
Working Paper: On the Extent of Economic Integration: A Comparison of E.U. Countries and U.S. States (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100009

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