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On intertemporal general-equilibrium reallocation effects of Europe's move to a single market
This paper provides intertemporal general-equilibrium investigation of the welfare and employment consequences of Europes move to a unified market, using a multicountry, multisector applied model with imperfect competition, increasing returns-to-scale, and product differentiation at the firm level. The oligopolistic game between firms is assumed to be Nash in output. In the short-term, market imperfections (such as oligopolistic profits and wage rigidities) may exist. These imperfections vanish in the long run, characterized by stock-flow equilibrium consistent with steady-state growth. Europe 1992 is interpreted as the elimination of the possibility for oligopolistic firms to price-discriminate between client countries within the European Community. Investigations are performed under alternative wage determination mechanisms (flexible wages v.s. wage indexation). We show, among other things, that the gains remain modest when dynamic effects are taken into account, and that all member countries are not sure to gain from European integration in the long run.
AUTHORS: Akitoby, Bernardin; Mercenier, Jean