Global Versus Local Integration and Europe’s Options

Abstract

Using the world trade model, we show that small countries and countries with high trade barriers gain more than others from global trade integration. Poor countries and commodity exporters benefit along with others. For Western Europe, trade integration with other world regions could provide larger gains than intra-European integration, if a similar depth of integration could be achieved—however, it is not so easy. Also for Europe, trade liberalisation must be reciprocal if a loss of manufacturing is to be avoided. Integration between Europe and Asia could relocate manufacturing to Europe. With respect to trade integration within world regions, Asia and surprisingly Africa have most to gain from such integration, whereas Eastern Europe is at the other end of this scale—Russia should “go global” and engage in FTAs (Free Trade Agreements) beyond its neighbourhood.