The Single Market, welfare and population size – an analysis of EU countries and regions. Bertelsmann Policy Brief

The Single Market (SM) constitutes the world’s largest economic area. Its trade liberalization policies can bring about significant income gains: Fewer barriers to trade are likely to increase competition and boost the productivity of firms – which would positively impact upon wage growth. Moreover, heightened competition decreases markups and reduces the prices of goods and services, which fosters consumer welfare. Through these channels, the SM increases the size of the “economic pie” and contributes to stronger economic growth across European countries and regions. These welfare gains can be deemed as “direct” or “first round” as fewer trade barriers and thus lower trade costs due to the SM directly translate into higher productivity and lower prices. Empirically, these welfare gains have been documented in a number of recent studies (e.g., Ponattu and Mion, 2019a)