ECONOMICS OF EUROPEAN INTEGRATION
CEU, Economics Department



Lecturers: Prof. Kalman Dezseri  1-4,  17-18
                  Prof.  Alfred Tovias     5-12
                  Prof Tal Sadeh   13-16
Course: 3 credits

Reading
The main text which will be used is:
R. Baldwin and C. Wyplosz, The Economics of European Integration, McGraw Hill, 2004
This will be supplemented by frequent references to the following:
1) J. Pelkmans, European Integration: Methods and Economic Analysis, 2nd ed. Prentice Hall, 2001
2) M.Artis, F Nixson (ed), The Economics of the European Union, 3rd ed. Oxford, 2001
3) P. De Grauwe, The Economics of Monetary Union, 5th ed. Oxford U.P, 2004
4) El-Agraa   The European Union  (6th ed)
5) David Dyker   The European Economy (2nd ed)

On such a fast changing subject texts are almost always out of date so journal articles need to be used.  To keep up to
date the Journal of Common Market Studies (JCMS) has a special issue each year which includes a review of the previous
year's activities of the EU. There are frequently good articles in the journal Economic Policy.  The European Commission
maintains a host of Web sites, which can be accessed from the EU’s main site at http://europa.eu.int  (from where you can
navigate in any of the 20 EU official languages).  These can be useful in getting up to date information on policy. Statistical
information can be found at http://europa.eu.int/comm/eurostat, and from the ECB web site at http://www.ecb.int.

Structure of the Course:

PART ONE  (Prof. Dezseri)

Lecture 1 and 2  (10 and 12 January)

History of the European integration
- political ideas,
- integration theory (B.Balassa, J.Viner, T.Scitovsky, R.Nurske, etc)
- economic integration organisations in the world economy, global experience, WTO rules
- the process of economic integration: deepening, widening, enlargement (the treaties)
- economic tools of analysing EU integration,
- international monetary conditions
- enlargement
Reading:
Baldwin – Wyplosz: Ch. 1 and 4 and 10
Further reading:
Pelkmans: Ch. 1 and 2

Lecture 3  (17 January)
Institutions, law of the EU
- institutions,
- reforms of the EU institutions
- decision making,
Reading:
Baldwin – Wyplosz: Ch. 2 and 3
Further readings:
Artis – Nixons:  Ch 1
Pelkmans: Ch 1 and 2
El-Agraa:  Ch 25

Lecture 4  (19 January)
Economic constitution of the EU.
- economic constitution for integration, Single Market Act, the treaties
- subsidiarity and economic functions of the EU (economics of subsidiarity,
subsidiarity and EU regulatory strategy)

Reading:
Pelkmans: Ch. 3
Baldwin – Wyplosz: Ch.2
Further readings:
El-Agraa: Ch. 2
Pelkmans:  Ch 3 and 4
El-Agraa:  Ch 3



 

PARTS TWO AND THREE
(Prof. Tovias and Dr. Sadeh)

Reading

The main text which will be used is:

R. Baldwin and C. Wyplosz, The Economics of European Integration, McGraw Hill, 2004

This will be supplemented by frequent references to the following:

A.El Agraa, The European Union, Economics and Policies, 7th ed. Prentice Hall, 2004.
M.Artis, F Nixson (ed), The Economics of the European Union, 3rd ed. Oxford, 2001
J. Pelkmans   European Integration  , 1st ed. Longman 1997

On such a fast changing subject texts are almost always out of date so journal articles need to be used.  To keep up to
date the Journal of Common Market Studies (JCMS) has a special issue each year which includes a review of the previous
year's activities of the EU. There are frequently good articles in the journal Economic Policy, the Journal of Common Market
Studies, The World Economy and The Journal of European Integration.  The European Commission maintains a host of Web
sites, which can be accessed from the EU’s main site at http://europa.eu.int  (from where you can navigate in any of the 20 EU
official languages).  These can be useful in getting up to date information on policy. Statistical information can be found at http://europa.eu.int/comm/eurostat, and from the ECB web site at http://www.ecb.int.
 
 
 

PART TWO (Prof.Tovias)
Lecture 7  (2 February)

Budgetary issues

Economic constitution of the EU. The budget of the EU
- economic constitution for integration, Single Market Act, the treaties
- subsidiarity and economic functions of the EU (economics of subsidiarity,
subsidiarity and EU regulatory strategy)
- budget: own resources, financial framework (Agenda 2000, financial framework 2007-13)
Reading:
Baldwin – Wyplosz: Ch.2
El Agraa: Ch.19

Further readings:
El-Agraa: Ch. 14
Pelkmans: Ch.4

 
Lecture 8  (3 February)
Common Agricultural Policy (CAP)

Reading:
Baldwin – Wyplosz: Chapter 8

Further reading:
Artis- Nixson: Ch.5
Pelkmans:  Ch 11
El-Agraa:  Ch 20
 

Lectures 9 and 10 (6 and 7 February).
The theory of preferential liberalisation (Customs Union Theory)

Trade and integration; the core economic theory of the EC; preferential liberalisation and Customs Unions; the concepts
of trade creation and trade diversion Modifying CU theory: the role of scale economies; terms of trade effects; dynamic
effects; measuring the effects of a customs union (ex ante and ex post approaches); the determinants of intra-EC trade;
the growth of intra-industry trade.

Reading
Baldwin and Wyplosz, Chapters 4-5.
Artis and Nixson, Chapter 3
A.Tovias, A Survey of the Theory of Economic Integration, Journal of European Integration, Vol. 15, No. 1, 1991, pp.5-23.
El Agraa, Chapters 6 and 7

Further Reading
B. Balassa and L. Bauwens, Determinants of intra-European trade in manufactured goods, European Economic
Review. Vol. 32, 1988.
A. Jacquemin and A. Sapir, International trade and integration of the European Community: an econometric analysis,
European Economic Review, Vol. 32, 1988.
 
Lecture 11 (9 February)
New Trade Theories and Market Integration

Trade under imperfect competition; the need for competition policy; the growth of non-tariff barriers; problems of competitiveness
and the lack of convergence.

Reading
Baldwin and Wyplosz, Chapter 6
A.Tovias, A Survey of the Theory of Economic Integration, Journal of European Integration, Vol. 15, No. 1, 1991, pp.5-23.

Further Reading
A Smith and A J Venables, Completing the internal market in the European Community: some industry simulations, European
Economic Review, 32(1988)

M Gasiorek, A Smith and A J Venables, The accession of the UK to the EC: a welfare analysis, Journal of Common Market
Studies, 40(2002)
 
Lecture 12 (13 February)
Competitiveness and Competition in the Single Market

The Single Market programme - the four freedoms (goods, services, capital and labour), non-tariff
barriers, factor mobility; the effects of imperfect competition; the location of industry and the
“new economic geography”

Reading
Baldwin and Wyplosz, Chapters 6 and 9
El Agraa, Chapter 11
Artis and Nixson, Chapters 6-7

Further Reading
A. Sapir  The effects of Europe’s internal market program on production and trade: a first assessment Weltwirtschaftliches
Archiv 132 (1996) 457-475
P Krugman, Making sense of the competitiveness debate, Oxford Review of Economic Policy,12(3), 1996, 17-25
C Allen, M Gasiorek, A Smith, The competition effects of the Single market in Europe, Economic Policy, 27, 1998, 441-486
P Krugman, What's new about the new economic geography? Oxford Review of Economic Policy, 14(2), 1998,  7-17
AJ Venables, Localization of industry and trade performance Oxford Review of Economic Policy,12(3), 1996, 52-60
 
Lecture 13 (14 February)
Labour markets in the EU

The role of labour market and social policies; migration within the Single Market; migration as a macroeconomic stabilisation
mechanism; the costs and benefits of internal and external migration; macroeconomic aspects of labour market policy.

Reading
Baldwin and Wyplosz, Chapters 7 and 17
El Agraa, Chapter 18
Artis and Nixson, Chapter 14

Further Reading
M Dewatripont, A Sapir, K Sekkat (eds) Trade and Jobs in Europe esp. Chapters 5, 7
 

Lecture 14 (15 February)
Trade Policy
WTO rules. GATT and WTO negotiations. The EEA. The EMP. The ENP. REPAs.

Reading
Artis and Nixson, Chapter 11
El Agraa, Chapter 24

 
Further Reading
P.Demaret, J.F.Bellis and G.Garcia Jimenez(eds.), Regionalism and Multilateralism After The Uruguay Round: Convergence,
Divergence and Interaction, Brussels, European Interuniversity Press, 1997
A.Tovias, Normative and Economic Implications for Mediterranean Countries of the 2004 European Union Enlargement, Journal
of World Trade, Vol. 39, No. 6, December 2005, pp. 1135-59.

Lecture 15 (17 February)
Foreign Aid and External Assistance
Development cooperation. ODA record of the EU member states. The Europe-ACP relationship.

Reading
Artis and Nixson, Chapter 15
El Agraa, Chapter 25
Further reading
DAC Development Report of the OECD(Recent issues)

PART THREE (Dr.Sadeh)
Lecture 16 (February 27)
The Evolution of European Monetary Integration

Reading
Baldwin and Wyplosz, 2004, Ch. 12, 14.

Further reading
Artis and Nixson, 2001, Ch. 12, 13;
Baldwin and Wyplosz, 2004, Ch. 10;
De Grauwe, 2006, Ch. 5-10;
Pelkmans, 1997, Ch. 16.1, 16.4 , 17.3.
 
Lecture 17 (February 28)
Why EMU? The Classic, the New and the Endogenous Schools of Optimum Currency Area Theory

Reading
Baldwin and Wyplosz, 2004, Ch. 11, 13.
 
Further reading
Alesina and Barro, 2002;
Artis and Nixson, 2001;
Benassy-Quere and Lahreche-Revil, 2000;
De Grauwe and Aksoy, 1999;
Eichengreen, 1997;
Frankel and Rose, 1997;
Bayoumi and Eichengreen, 1997;
Forni and Reichlin, 2001;
Frankel and Rose, 2002;
Obstfeld and Peri, 1998;
Pelkmans, 1997, Ch. 16, 17;
Persson, 2001;
Rose, 2000;
Rose,  2001;
Sadeh, 2005.
 

Lecture 18 (March 1)
The Domestic Political-Economy of EMU: Interest groups, Partisanship, the Political Business Cycle
and Institutions

Reading
Frieden, 2002.

Further reading
Blomberg and Hess, 1997;
Clark and Hallerberg, 2000;
Hallerberg, Vinhas de Souza and Clark, 2002;

Bibliography
1. Alesina, A. and R. J. Barro (2002), Currency Unions, Quarterly Journal of Economics, 117, 2, 409-36.

2. Bayoumi, T. and B. Eichengreen (1997), Ever closer to heaven? An optimum currency area index for European countries,
European Economic Review, 41, 761-770

3. Benassy-Quere, A. and A. Lahreche-Revil (2000), The Euro as a Monetary Anchor in the CEECs, Open Economies Review,
11, 4, 303-21.

4. Blomberg, B. S. and G. D. Hess (1997), Politics and Exchange Rate Forecasts, Journal of International Economics, 43, 1-2,
189-205.

5. Clark, W. R. and M. Hallerberg (2000), Strategic Interaction between Monetary and Fiscal Actors under Full Capital Mobility,
American Political Science Review, 94, 2, 323-46.

6. De Grauwe, P. (2005), The Economics of Monetary Union (Oxford: Oxford University Press), sixth edition.

7. De Grauwe, P. and Y. Aksoy (1999), Are Central European Countries Part of the European Optimum Currency Areas?, in
P. De Grauwe and V. Lavrac (eds.), Inclusion of Central European Countries in the European Monetary Union
(Boston: Kluwer), 13-36.

8. Eichengreen, B. (1997), European Monetary Unification: Theory, Practice and Analysis (Cambridge: MIT Press).

9. Forni, M. and L. Reichlin (2001), Federal Policies and Local Economies: Europe and the US, European Economic Review,
45, 1, 109-134.

10. Frankel, J. A. and A. K. Rose (1997), Is EMU More Justifiable Ex Post than Ex Ante? European Economic Review, 41,
753-760.

11. Frankel, J. A. and A. K. Rose (2002), An Estimate of the Effect of Common Currencies on Trade and Income, The Quarterly
Journal of Economics, 117, 2, 437-66.

12. Frieden, J. A. (2002), Real Sources of European Currency Policy: Sectoral Interests and European Monetary Integration,
International Organization, 56, 4, 831-60.

13. Gros, D. and N. Thygesen (1998), European Monetary Integration (Essex: Longman) second edition.

14. Hallerberg, M., L. Vinhas de Souza and W. R. Clark (2002), Political Business Cycles in EU Accession Countries, European
Union Politics, 3, 2, 231-50

15. Obstfeld, M. and G. Peri (1998), Asymmetric Shocks, Regional Non-Adjustment and Fiscal Policy,
Economic Policy, 13, 26, 207-59.

16. Persson, T. (2001), Currency Unions and Trade: How Large is the Treatment Effect?, Economic Policy, 33, 433-448.

17. Rose, A. K. (2000), One Money, One Market: The Effect of Common Currencies on Trade, Economic Policy, 30, 7-45.

18. Sadeh, T. (2005), Who Can Adjust to the Euro?, The World Economy, 28,
 



 

Prof Dezseri

Lecture 17

Competitiveness and Growth
Competitiveness, productivity and growth; old and new theories of growth, factor market integration; industry policy; the
‘Lisbon Strategy’; the EU in the world economy; international competitiveness of the EU; current economic problems of the
EU (ageing societies, financial markets, etc.)

Reading

Baldwin and Wyplosz, Chapter 7
Pelkmans, Chapters 15-16
Further Reading
R. Baldwin, The growth effects of 1992, Economic Policy, 9, October 1989.
N. Crafts, Productivity growth reconsidered, Economic Policy, 15, October 1992
*N. Crafts, Post-neoclassical endogenous growth theory: what are its policy implications?
Oxford Review of Economic Policy, 12(2), 1996 pp. 30-47
André Sapir (Chairman), An Agenda for a Growing Europe: Making the EU Economic System Deliver Report of an
Independent High-Level Study Group established on the initiative of the President of the European Commission
(published by OUP, 2004). p.21-68
W. Kok Report
Lamfalussy Report (Report on the regulation of the European securities market)
(Files can be downloaded from the EU web site)

Lecture 18

Convergence and Regional Problems
Comparisons of regional and national experiences of convergence; causes and implications of regional disparities in a
single market; centrality versus peripherality; the role of regional policy; the principle of additionality; mismatch (tendency of
funds to go disproportionately to richer regions); the move to Structural Funds; the relevance of spatial policy in a single market

Reading

Baldwin and Wyplosz, Chapter 9
Pelkmans, Chapter 15
Artis and Nixson, Chapter 8
Further Reading
*M. Boldrin and F. Canova, Inequality and convergence in Europe’s regions: reconsidering European regional policies,
Economic Policy, 32 (2001) 205-253
*K Midelfart Knarvik and H Overman, Delocation and European integration: is structural spending justified? Economic Policy,
35 (2002) 321-359
P Braunerhjelm, R Faini, V Norman, F Ruane and P Seabright, Integration and the Regions of Europe: How the Right Policies
Can Prevent Polarization, Monitoring European Integration 10, CEPR, 2000, esp. Chapters 2 and 5
M Brülhart, Economic geography, industry location and trade: the evidence, The World Economy, 21(1998) 775-802
P Martin, Can regional policies affect growth and geography in Europe? The World Economy, 21(1998) 757-774