EFTA and the Internal European Market

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Abstract
EFTA and the internal European market Victor Norman The EFTA countries must come to grips with the EC's single market. This article contrasts two options. Under the first option, the EFTA countries do not change their current arrangements with the EC Under the second option, they join the EC's common market. Since the EC is the EFTA countries' main trading partner, significant changes in cost, demand and market structures within the EC must substantially affect EFTA. The simulation results – focusing on the motor vehicle and pharmaceutical industries – confirm that 1992 is important for EFTA countries, not so much because of the threat that an internal EC market represents, but rather because of the opportunities that a larger European market offers. Generally, the EFTA countries would not seem to lose much if they decided to stay outside the internal market but they could share much of the gains if they chose to integrate themselves. Quantitatively, the gain accruing to EFTA is likely to be greater than the gain to the typical EC country. This is because EFTA home markets are small, so that the tradeoff between scale economies and competition is more severe than for the larger EC countries.

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