Faculty of Economics and Business Administration Publications Database

Does an Enlargement of a Common Market Stimulate Growth and Convergence?

Volume: 45
Number: 2
Pages: 297 - 321
Month: August
ISSN-Print: 0022-1996
Link External Source: Online Version
Year: 1998
Keywords: Endogenous growth; Regional integration; Trade; Factor mobility
Abstract: We address the effects of a step-wise enlargement of acommonmarket from two to three countries by using a three-country endogenous growth model. We show that integration of a third, technologically lagging country via trade liberalization causes a reallocation of resources which stimulates overall growth. Liberalizing trade with the third country leads to income convergence between the two established countries. Furthermore, we look at the impact of a liberalization of factor markets.