European Models for Regional Integration: Implications for International R&D Spillovers

Abstract

As the countries in Europe have successfully managed to move forward the regions integration step by step, the European experiences offer three possible models for regional integration with different depths: a free trade arrangement, a single market, and a common currency area. We study in this paper the effect of the three different models of regional integration on total factor productivity to examine the long-run growth implication of individual models. Our evidence suggests that the entry into regional groupings clearly changes the way participating economies grow, no matter which model of regional integration the groupings take. Domestically powered growth becomes less important, and regionally powered growth comes to be the new source of growth. In particular, countries stand to benefit from considerable inter-regional R&D spillovers in addition to intra-regional R&D spillovers if their regional groupings take the form of a single market or a common currency area.