European Integration and the Functioning of Product Markets
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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.
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Chapter 6: Product market reforms and macroeconomic performance in the European Union

Adriaan Dierx, Karl Pichelmann and Werner Röger


Adriaan Dierx, Karl Pichelmann and Werner Röger* INTRODUCTION Europe’s key challenges of restoring full employment, creating a knowledgebased economy, preparing for population ageing and safeguarding social cohesion are closely interlinked and need to be addressed by a coherent and comprehensive economic policy strategy for the medium to long term. The overarching objective of the strategy adopted by the European Union is to enhance the capacity of its economy to generate high rates of non-inflationary growth over a prolonged period. Basically, this requires pressing ahead with deep, comprehensive reforms of product, capital and labour markets, backed up by a sound macroeconomic policy mix aiming at sustained rates of growth close to potential within an environment of price stability. Against this background, this chapter looks at the structural reform efforts affecting EU product markets since the early 1990s and their impact on macroeconomic outcomes in terms of (un-)employment, real wages and growth. It also tries to take the interlinkages between reform areas into account, and to assess their impact on macroeconomic performance in a scenario analysis of different macroeconomic policy settings. The chapter is organised as follows: Section 6.1 sets the stage for the analysis by providing some economic and political background considerations to the reform effort. The theoretical framework of the study is presented in Section 6.2, which describes the main transmission channels linking structural improvements in product markets with macroeconomic performance. Section 6.3 treats the interdependence between structural reforms in product and labour markets, and elaborates on...

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