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Who Is Against a Common Market?

Author

Listed:
  • Giovanni Facchini
  • Cecilia Testa
Abstract
This paper develops a theory of the endogenous formation of a common market in a three-country, two-factor political economy model. In the status quo, Home and Foreign implement nondiscriminatory policies toward international factor flows in order to maximize the domestic median voter's welfare. Then the two countries simultaneously hold referenda on a common market initiative, leading to the removal of the pre-existing policies for factor flows between the member countries, while no coordination is imposed on policies vis-à-vis the Rest of the World. Several interesting results emerge. In a common market, the returns on factors moving between the members are more likely to increase the larger is the import demand of one country relative to the factor supply of the exporting partner. Factors that do not relocate are more likely to see their returns decrease when flows are large and import demands are inelastic. Importantly, for the common market to emerge as an equilibrium, some factors must continue to experience enhanced protection when the integration process is completed. This result highlights the potential tension between social desirability and the political feasibility of the integration process. (JEL: F1, F2, P16) (c) 2009 by the European Economic Association.

Suggested Citation

  • Giovanni Facchini & Cecilia Testa, 2009. "Who Is Against a Common Market?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1068-1100, September.
    • Handle: RePEc:tpr:jeurec:v:7:y:2009:i:5:p:1068-1100
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    Cited by:

    1. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2011. "Do interest groups affect US immigration policy?," Journal of International Economics, Elsevier, vol. 85(1), pages 114-128, September.
    2. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2007. "Do Interest Groups Affect Immigration?," IZA Discussion Papers 3183, Institute of Labor Economics (IZA).
    3. Pierre M. Picard & Tim Worrall, 2016. "Is a Policy of Free Movement of Workers Sustainable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 718-754, October.
    4. Facchini, Giovanni & Silva, Peri & Willmann, Gerald, 2013. "The customs union issue: Why do we observe so few of them?," Journal of International Economics, Elsevier, vol. 90(1), pages 136-147.
    5. Bougheas, Spiros & Nelson, Doug, 2013. "On the political economy of high skilled migration and international trade," European Economic Review, Elsevier, vol. 63(C), pages 206-224.
    6. Facchini, Giovanni & Testa, Cecilia, 2021. "The rhetoric of closed borders: Quotas, lax enforcement and illegal immigration," Journal of International Economics, Elsevier, vol. 129(C).
    7. Giovanni Facchini & Anna Maria Mayda, 2009. "The Political Economy of Immigration Policy," Human Development Research Papers (2009 to present) HDRP-2009-03, Human Development Report Office (HDRO), United Nations Development Programme (UNDP), revised Apr 2009.
    8. Cyrille Schwellnus, 2008. "The Non‐Traded Sector, Lobbying, And The Choice Between The Customs Union And The Common Market," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 361-390, November.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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