Abstract
In this paper it is analyzed the effect of an Economic Integration to the economy of each country, especially it is focusing on the emerging income disparity through the enlargement of European Economic Integration to the Eastern Europe. Our particular interest is the effect of the following case that two different groups, which are the developed countries in Western Europe and the developing countries in Eastern Europe, have large economic disparities and they integrate their economy. The purpose of this paper is also to draw on political implications from this analysis.
It is assumed that the convergence mechanism of income is affected through two factors, one is the price level and the other is the labor productivity. These two factors have different characters of convergence mechanisms. In fact, the price level converges faster than the labor productivity. We consider the relationship between income convergence mechanism and convergence mechanisms of these two factors and analyze the impact of an Economic Integration among economic differential countries.
We found through our empirical analysis that the convergence mechanism of the labor productivity is correlated more to the income convergence than the mechanism of the price level. Because the mechanism of labor productivity converges very slow and is not affected directly by political methods, we conclude that the income disparity exists ongoing in the Economic Integration Area of Western and Eastern Europe.
In the theory the economic policy should be controlled in a unified way among all member countries of an Economic Integration Area. But, if we follow our results in this paper, there are different characters of economy among member countries.
In this sense, the unified way of economic policy can not fit situations of all member countries in Economic Integration Area, so that, our political implication is to set a wider range of discretionary administration for the groups, which is composed by countries with similar economic situations within the member countries of Economic Integration.
