ECON 3807: European Economic Integration

ECON 3807: European Economic Integration

Assignment 1

Deadline: February 5

1. In many European nations, the trend for the past couple of decades has been to decentralize decision making from the national level to the provincial or regional level. How could you explain this trend in terms of the theory of fiscal federalism?

2. Assume a three-country world: Germany (G), France (F) and the US (U) (all large countries). France is a net importer of sports apparel and Germany and the USA are net exporters. Assume that France has a common tariff for all imports of sport apparel from Germany and the USA.
3. Using the appropriate diagrams, analyze the effects on the imports of France and the exports of Germany and the USA from a removal of the tariff across the board. What are the effects on the international border price of sport apparel? What are the effects on consumers, producers and government revenues in each country? What are the effects on general economic welfare in each country?
4. Using the appropriate diagrams, analyze the effects on the imports of France and the exports of Germany and the USA from a removal of the tariff on German exports. What are the effects on the international border price of sport shoe exports of Germany and the USA? What are the effects on consumers, producers and government revenues in each country? What are the effects on general economic welfare in each country?
5. Relate your conclusions to the GATT round of generalized tariff reductions in the 1960s and to the creation of the EEC.

3. Assume a three-country world: Germany (G), France (F) and the UK (U) (all large countries). U is a net importer of good 1, while G and F are net exporters of good 1. Assuming that U had no frictional barriers (non-tariff barriers) to trade with G and F in the initial situation, by using the appropriate diagrams, analyze the effects of U increase of frictional barriers to trade in good 1 with F and G as a result of BREXIT. Consider that the tariff equivalent for the frictional barrier is T. What are the effects on the international border price of good 1 exports of Germany and France? What are the effects on consumers, producers and government revenues in each country? What are the effects on general economic welfare in each country?

4. Consider a sequence of EU enlargements where each enlargement involves a no-trade-to-free-trade addition of one more member. Specifically, suppose there are three initially identical economies, each of which looks like the one described in the textbook, Section 6.2. Initially, all nations are closed to trade.

1. Now consider a no-trade-to-free-trade integration between two of the nations.
2. Then consider a no-trade-to-free-trade integration of a third nation.
3. Calculate how much the third nation gains from joining and compare it to how much the existing two-nation bloc gains from the third nation membership.
4. Who gains more in proportion to size: the ‘incumbents’ or the ‘entrants’? (Hint1: the second step represents integration between unequal-sized economies.Hint2: size of nation is defined by the position of the demand curve with the demand curve of the large nation further out than the demand curve for the small nation).

5. Explain why the immigration of low-skilled workers can hurt native low-skilled workers and benefit high-skilled workers.