Economics and Policies of an Enlarged Europe
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Economics and Policies of an Enlarged Europe

Carlo Altomonte and Mario Nava

Carlo Altomonte and Mario Nava have written a very rigorous text in an accessible and jargon-free style, ensuring easy acquisition of invaluable insights into the European economic set-up and the possible evolution of EU policies, including an update on the reform of the Growth and Stability Pact and of the 2007–13 Financial Perspectives.
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Chapter 2: The Classic Theory of Economic Integration

Carlo Altomonte and Mario Nava


2.1 INTRODUCTION It is not unusual to hear the argument that, among the causes behind the start of World War II (WWII), there was the ‘protectionist’ attitude of many countries, and the ‘commercial wars’ that this attitude generated. Nowadays protectionism and its opposite, free trade, are two concepts often making the headlines in the current debate on the so-called ‘globalisation’ of economic activities, a phenomenon ultimately based on the progressive liberalisation of trade flows across the world.1 The theory of economic integration studies how and at what cost countries can pass from a situation of total protectionism, that is, a closure of a country’s borders to the international flows of goods, services and factors of production, to a situation of free trade, an institutional set-up in which goods, services and (eventually) factors of production can freely circulate across countries. Clearly a comprehensive answer to this question implies considering at least four different dimensions. 1. 2. The degree to which free trade is achieved: restrictions to trade can be totally or only partially abolished. The geographical coverage: a country can bilaterally agree to have free trade with one/more other countries or groupings of countries, or it can multilaterally open up its borders with respect to the rest of the world, in general through an agreement signed within an international organisation. The extent of free trade: restrictions on trade flows can be removed only for certain goods and/or services and/or factors of production. The range of effects considered: economic integration...

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