Integration effects in the EEC: An attempt at quantification in a general equilibrium framework

This paper presents an attempt at quantitatively examining integration effects in the EEC within a general equilibrium framework. The methodology is based on multinational input-output analysis, where the national interindustry structures of the EEC-countries are linked together via gravitational trade flows. The analysis of trade effects is of the ex post type: Hypothetical trade flows of the customs union's anti-monde are calculated for the years 1965 and 1970 on the assumption that the structural relationships observed in 1959 remained unchanged, and comparison is made with actual trade flows. The results indicate substantial trade creation. There is little trade diversion, and external trade creation, where it occurred, is generally only a small fraction of internal trade creation. Substantial trade creation occurred in Italy, France, and Germany; trade diversion appeared in the Benelux countries. Sectors with high trade creation were agriculture and manufacturing industries, while trade diversion was concentrated in fuels and mining. The results conform with ex ante expectatations based on estimates of pre-union trade resistance.