Assess The Advantages And Disadvantages Of The Single Market.

There have been various stages of economic growth between the countries of the European Union since 1958, when its history began. The pen-ultimate stage of its integration was a common or single market. Within a single market there a no tariffs between member countries and there are common external tariffs against countries outside the agreement. A single market is a strong form of integration involving the establishment of a common system of taxation, common laws relating to employment

and trade, and the free movement of factors of production as well as goods and services. Within the European Union, members not only enjoy free trade in goods and services but also the free movement of labour and capital. For example, a worker in the United Kingdom should be able to re-locate and work in any of the member states without being prevented by legislation.

The Single European act was signed in 1986, which outlined a timetable for the implementation of measures to create a true single market by the end of 1992.

Economists argue that integration leads to large benefits for the countries involved, with more complex stages of integration such as a single market leading to significant benefits in terms of efficiency and welfare gains and cost reductions.

We can split the benefits of integration into short-term or static gains and more long-term dynamic gains.

The establishment of the Single market within Europe has led to significant gains for the participating member states. The removal of internal market barriers and the harmonisation of national regulations are expected to lead to an increase in trade and reductions in cost.

David Ricardo stated in his theory of Comparative Advantage that countries would not be able to fully exploit all the advantages from trade unless there is the removal of all barriers to trade. Integration leads to the exploitation of gains from comparative advantage with firms specialising, leading to efficiency gains and exchanging products within an enlarged market. The enlarged market also means a greater competition between firms, which again ought to foster an increase in efficiency, particularly Allocative efficiency (prices reflecting the economic marginal costs of supply). A further benefit of an enlarged market is the establishment of Economies of Scale. Scale economies will be large in those industries that, prior to the removal of trade barriers, operated in national markets which were not significantly large enough to allow for optimum output levels. The introduction of economies of scale will lead to efficiency gains reflected in cost reductions.

In the longer term there will be dynamic gains. The increased level of competition and market enlargement should lead to technical progress and an improvement in the allocation of factors of production such as capital and labour in the trading area. These should lead to improvements in GDP and future economic growth levels.