European Integration and the Functioning of Product Markets

European Integration and the Functioning of Product Markets

Edited by Adriaan Dierx, Fabienne Ilzkovitz and Khalid Sekkat

The book reveals that European product market integration has a significant impact on the conditions of competition, the strategies of companies and the structure of industry. It adds a quarter of a percentage to annual GDP growth rates and has not led to an increased exposure of the EU to asymmetric shocks. However, the book argues that further improvements in the functioning of European product markets are needed in order to improve the EU’s growth performance over the next decade. Invaluably, the book provides not only current information about Europe’s achievements in economic integration but also methodology to assess the outcome of economic integration in other regions of the World, such as NAFTA, MERCOSUR and ASEAN.

Chapter 3: Changes in the industrial and geographical diversifi cation of leading fi rms in European manufacturing

Laura Rondi, Leo Sleuwaegen and Davide Vannoni

Subjects: economics and finance, industrial economics


3. Changes in the industrial and geographical diversification of leading firms in European manufacturing Laura Rondi, Leo Sleuwaegen and Davide Vannoni* INTRODUCTION For a long period the industrial policies of national governments in Europe aimed at reinforcing the position of leading firms in the country in order to face the rapidly growing competition from US and later from Japanese firms (Cox and Watson, 1996). The privileged position of these firms offered them substantial monopoly power within their markets, which, unfortunately, also often resulted in the use of many inefficient practices. Most governments sustained the privileged position of these national champions through the erection of various kinds of non-tariff trade and investment barriers directed against foreign competitors and creating strong borders protecting national markets. The recognition that these policies failed and were partly responsible for slow growth, high unemployment and inflation after the first oil shock in 1973 led the European Commission to formulate and implement an ambitious integration programme eradicating all the various barriers to trade and investment. The Single Market Programme came into effect in 1987 and was largely completed by the mid-1990s. The programme concerned mainly the manufacturing industries. Services sectors have more recently become the subject of integration measures. The macroeconomic and sectoral consequences of the integration programme have been intensively discussed in the literature. Surprisingly, the consequences for individual firms have hardly been documented. The present chapter represents an original attempt to trace the changing industrial and geographical diversification strategies of firms as...

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