The Impact of EC92 on the Third Country: A Simple Analytical Framework under Imperfect Competition

Abstract

Recent developments in Europe and North America suggest that the world is now under a tide of new regionalism. The regional economic integration, especially that in Europe, has long been studied by prominent economists. In the 1960s, shortly after the formation of the EEC, many theoretical and empirical studies, which were based on Viner’s pioneering study (1950) of “customs union,” were published. Since the beginning of the 1980s, as the target date of the European Community (EC) single market (i.e., the end of 1992) approaches, European integration has again become the subject of intensive and extensive research. While Viner-type general equilibrium analysis in the 1960s sometimes gave counterintuitive results, e.g., an “all or nothing” pattern of trade, the new studies in the 1980s overcame such shortcomings by incorporating various realities in world trade such as imperfect competition, increasing returns to scale, and product differentiation. It should be noted, however, that almost all existing studies are concerned with the impact of economic integration on member countries alone, e.g., the impact of the completion of the internal market on EC members. Needless to say, the regional integration will give various impacts on outside countries. In fact, considerable debates on how the Japanese firms (and workers and consumers) would be affected by the formation of the single market in the EC have been going on in Japan. Unfortunately, there are no major studies in the literature that rigorously analyze the impact of European integration on outside countries, such as Japan.