Welfare effects of 1992: A general equilibrium assessment for EC and EFTA countries

In this paper production, trade and welfare effects of European integration are discussed, with particular emphasis on the effects for the EC and EFTA. Insights from previous partial and general equilibrium analyses of the internal market are reviewed, and new model simulations are presented. In addition to the standard experiments of 1992 — as reduced trade costs and as full market integration — for the EC alone, and for the European Economic Area (EEA), an intermediate case, with full integration in the EC but only lower trade costs between the EC and EFTA, is analysed. All cases show that EFTA will benefit significantly from freer trade and closer integration with the EC. With regard to non-European regions, the simulations of European integration show some degree of trade diversion, but stylized model experiments indicate that a successful outcome of the Uruguay-round may more than offset the trade-diverting effects of 1992.