The dynamics of economic integration: theory and policy

Abstract

Integration affects economic growth mainly through two dif-ferent channels: The scale-effect channel and the factor-reallocationchannel. In order to investigate both channels within a unifyingframework, we employ a simple descriptive growth model. The scale-effect channel increases either the long-run growth rate orthe level of the balanced growth path. The factor-reallocationchannel is ambiguous. It is shown under which conditions thismechanism induces either a rise or a fall in the long-run growthrate. In addition, a number of policy conclusions are drawn.