Industrial Organization and the Gains from Europe 1992

Abstract

EUROPE 1992 promises substantial economic gains to the 12 nations that are to make up the single integrated market.From the larger market are to flow the microeconomic benefits of economies of scale and increased competition.It is these gains that are the promise of Europe 1992; the gains from macroeconomic policy come largely from capitalizing on the supply-side shock of lower prices and costs.A quantitative estimate of the gains was made in a widely publicized report, sponsored by the Commission of the European Communities, known as the Cecchini report.' The report estimates the microeconomic gains to be 4.3 percent to 6.4 percent of gross domestic product, with appropriate accompanying macroeconomic policies adding another 2.5 percent.2It is a one-time gain analogous to those achieved by eliminating a domestic monopoly or a tariff.Lest the estimated gain seem small, it is several times the estimated gain of 1 percent of GDP from the 1968 elimination of tariffs on industrial products among the then-Common Market members.3To state the relative size of the gains in another way, the midpoint of the report's estimates of the microeconomic welfare gains from Europe 1992 is 216 billion European currency units (ECU), Susan Parker and Kyle Smith served as research assistants, and Diane Bowman typed the text.The author is much indebted to these three for their help.