Outsiders in Economic Integration: The Case of a Transition Economy

European University Institute Working Paper No. 99.32

27 Pages Posted: 1 Nov 1999

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Stefano Manzocchi

LUISS University; Luiss University - Department of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 1999

Abstract

We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration among two advanced countries on their own welfare as well as on the welfare of an outsiders transition economy. On the one side, since per capita income convergence depends on relative market access and local market size, piece-wise integration causes insider-outsider divergence. This phenomenon is exacerbated by slow transition. On the other side, simultaneous exclusion from the integration process and ongoing transition have unpredictable effects on the structural adjustment, which might even exhibit swinging behaviour. Since in practice such swings imply large adjustment costs, careful integration design is required. Under this respect, the asymmetric phasing out of trade barriers built in the Europe Agreements works in the right direction.

JEL Classification: F15, F31

Suggested Citation

Ottaviano, Gianmarco I.P. and Manzocchi, Stefano and Manzocchi, Stefano, Outsiders in Economic Integration: The Case of a Transition Economy (July 1999). European University Institute Working Paper No. 99.32, Available at SSRN: https://ssrn.com/abstract=180250 or http://dx.doi.org/10.2139/ssrn.180250

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

Stefano Manzocchi (Contact Author)

LUISS University ( email )

Viale Romania, 32
Rome, 00197
Italy

Luiss University - Department of Economics and Finance ( email )

Viale Romania, 32
Rome, 00197
Italy

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