PIECEMEAL VERSUS PRECIPITOUS FACTOR MARKET INTEGRATION

The effects of the speed of international factor markets integration a re studied within a general equilibrium, two country model. It is show n that even in the absence of economic frictions there can be no theor etical presumption regarding the ''optimal'' speed of integration. The paper identifies plausible conditions under which a precipitous pace leads to permanently lower and a piecemeal to permanently higher level s of income in the integrated economy. The analysis offers a justifica tion based on long term economic considerations for piecemeal European Community integration practices such as transition periods, admission s phasing out, and for the precipitous German unification.