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© 1994 International Bank for Reconstruction and Development / The World Bank

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THE IMPACT OF EC-92 ON TRADE IN DEVELOPING COUNTRIES

A. J. Hughes Hallett

How is the attempt of the European Community (EC) to create a single market going to affect the developing countries? This article argues that the net direct effects of EC-92 may be rather small: the trade creation and trade diversion effects brought about by the program may cancel each other out, with few repercussions for the developing countries as a group. The expected changes in trade flows arising from relatively small changes in nominal prices and aggregate incomes, the changes in market structure, the removal of internal barriers, and a predicted 5 percent increase in EC output may be important to European policymakers, but they are rather remote from the developing countries.

The threat of EC-92 to the developing countries lies elsewhere: from diversion of investment from those countries to the EC and from the resurrection of protectionism by the EC, especially in the form of nontariff barriers, toward the outside world.


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