The Growth Effects of 1992

Abstract

The growth effects of 1992 Richard Baldwin The Cecchini Report estimates that 1992 will raise the output of the European Community by between 2.5 and 6.5%. If the effect is so small, why is everyone so excited? These numbers are so small because the Cecchini Report only measures 1992's one-time effects on productivity and output. It does not attempt to quantify the growth effects. Yet if the latter exist, they are likely to dwarf the one-time gains. The growth effects can be described in theory and measured, in practice. Even if 1992 has no permanent effect on European growth, it will bring a medium-run growth bonus. Higher productivity will improve the savings and investment climate in Europe. The resulting extra investment will provide a medium-run output effect proportional to the one-time efficiency gain. This effect is likely to be of the same order of magnitude as the one-time effects measured by the Cecchini Report. With scale economies, completing the internal market may also permanently increase Europe's growth rate: Attempts to quantify this effect suggest that it could be the largest of all.

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