Theory of Economic Integration

obligatory courses

The aim of this course is to equip students with a thorough, unbiased and critical understanding of the main economic issues that arise in the context of integration.

The course introduces students to, and develops their understanding of, economic integration in the world by presenting concepts, theory and empirical work. Focusing on the European Union and other PTAs (Preferential Trading Areas), it examines the economic processes, problems and policies of integration in the recent past, currently and in prospect.

The course is designed for students with a solid background in international economic theory.

The specific student learning outcomes and experiences are:

- to understand the development and workings of the EC/EU and other PTAs;

- to become familiar with the key literature on economic integration.

The course will be structured in six Sections. For each Section, links to internet-based resources will be added below as the academic year progresses.

The course is designed for students with a solid background in international economic theory.

The specific student learning outcomes and experiences are:

- to understand the development and workings of the EC/EU and other PTAs;

- to become familiar with the key literature on economic integration.

Course outline:

1. Descriptive background (4 h)

What is economic integration

- Definition and significance

- The stages of economic integration

Preferential Trading Areas in world economy

- WTO rules

- Preferential Trade Agreements and the Multilateral Trade System

Basic Principles of EU & Institutions

- Post-War economic integration in Western Europe

- The decision-making institutions of the EU

- The budget of the EU

Main readings

Baldwin and Wyplosz: ch. 1-3

Dyker D. ch. 2, 3, 4

Hiritis T. ch. 1, 2, 4

McDonald F., Dearden S. ch.1, 4

Pelkmans ch. 1-4

2. Product-market integration in a neoclassical world (6h)

- Analysis of discriminatory liberalization

- Analysis of a free trade agreements

- Analysis of a custom union

- Empirical evidence

- Creation and diversion effects in empirical studies

- Estimated Effects of Trading Blocks

Main readings:

Baldwin, Wyplosz., ch. 5

Pelkmans ch. 5-6

3. Market Size and Scale Effects (4h)

"New Trade Theory": Increasing Returns and Imperfect Competition

- Monopoly, international duopoly, and the gains from trade through increasing competition

- Monopolistic competition and the gains from trade through increasing product variety

"New Economic Geography": Externalities and Agglomeration Economies

- The "core-periphery" model

- Welfare effects and multiple locations

- Empirical evidence on location patterns in the European Union

Terms of Trade Effects

Main readings

Baldwin Richard, Charles Wyplosz. ch. 6

Dierx A., Ilzkovitz F., Sekkat K. Ch. 3-5

Dyker ch.9

4. Microeconomics of Factor Market Integration (6h)

- Essential theory

- Single European Market

- Empirical studies

- The 1996 Review of the Single European Market programme

- Evidence of the effects of the SEM since 1996

Main readings

Baldwin Richard, Charles Wyplosz. 2004. ch. 7.4-5

Pelkmans ch. 6.6-7, 9-10

McDonald F., Dearden S. ch. 1

Dyker D. Ch. 5-6

Hitiris ch. 3

5. Macroeconomic issues (4h)

- European Macroeconomic cooperation

- Growth Effects

- Product market reforms and the macroeconomic performance

Main readings

Baldwin Richard, Charles Wyplosz. ch. 7.1-7.3

Dierx A., Ilzkovitz F., Sekkat K. ch. 6-8

Pelkmans ch. 16

Dyker ch.7

6. Monetary integration (6h)

- A Costs of a common currency

- Theory of Optimum Currency Areas

- Costs and benefits compared

- European Monetary System

- European Central Bank

- European Monetary Policy

Main readings

Baldwin & Wyplocz ch. 10, 12, 13, 14

Eijffinger & de Haan ch. 1-3

Artis and Nixson ch. 12

De Grauwe ch 1, 2, 3, 5, 7, 8

Pelkmans ch. 16, 17

The course does not follow a unique textbook, but it draws on the following titles:

- Baldwin, Richard and Wyplosz, Charles 2004 "The Economics of European Integration", McGraw-Hill (lecture slides http://hei.unige.ch/~baldwin/PapersBooks/BW/slides.htm)

- De Grauwe 2003 "Economics of Monetary Union" (5th ed) Oxford

- Dierx A., Ilzkovitz F., Sekkat K. (2005) "European Integration And The Functioning Of Product Markets" Edward Elgar

- Dyker D. 1999 "The European Economy", Longman

- Eijffinger & de Haan 2000 "European Monetary and Fiscal Policy", Oxford

- Hiritis T. 2003 "European Union Economics" Prentice Hall

- McDonald F., Dearden S. 2005 "European Economic Integration", Prentice Hall

- Pelkmans 2001 "European Integration" 2nd ed FT Prentice Hall

Recommended textbooks:

- Hansen, J.D. and Nielsen, J.U. 1997 "An Economic Analysis of the EU", 2nd edition, McGraw-Hill.

- Molle, Willem 2001 "The Economics of European Integration", 4th edition

Student is able to properly analyze the causes and course of processes taking place currently in the framework of European integration S2A_U03

Student has in-depth knowledge of the mechanisms accompanying the integration processes S2A_W09

Student has the ability to use the acquired knowledge to analyze processes taking place in the European Union S2A_U06

Student understands theories of integration S2A_U02

Student has an in-depth ability to prepare oral presentations on processes EU integration of the EU S2A_U10

Passing the lecture will be based on the oral exam. During the exam students will receive two open questions. In addition, students elaborate the article selected by the teacher. Grade will be issued solely on the basis of the answers to the exam and the written work based on the article.

KW01, KW02, KW03, KW04, KW05, KU01, KU02, KU03, KU04, KU05, KU06, KU07, KK01, KK02, KK03