European Integration: Some stylised facts

has been to circumvent the distance barriers and use the owner specific
advantages of the firm to have consumer production in more than one location.
In such cases, integration through foreign direct investment compensates at
least to some degree for the lack of integration of the goods market.

Significant restructuring and specialisation have taken place in European
business. The home market oriented diversification strategies of individual
firms have been replaced by strategies building on internationalisation and
development of core activities. As underlined in an article in the Economist
(2000), this has created a more competitive and dynamic environment in
Europe, where company behaviour has changed from destructive caution to
creative destruction. The upsurge in capital flows - real as well as human - in
the EU has therefore been a contributor to the economic integration of the
Member States and specifically, it has served to speed up the diffusion of
technological know-how.

Nominal convergence

At the macroeconomic level, integration has quite clearly left its mark. Most
importantly, the monetary integration has led to convergence of price levels,
inflation rates, and interest rate levels between the Member States.

The development in differences between the Member States with respect to
inflation rates is illustrated in Figure 4.

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