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Related to common market: Free trade area, Economic union, European Common Market
2. An informal term for the European Economic Community.
common marketsee TRADE INTEGRATION.
common marketa form of TRADE INTEGRATION between a number of countries in which members eliminate all trade barriers (TARIFFS, etc.) amongst themselves on goods and services and establish a uniform set of barriers against trade with the rest of the world, in particular, a common external tariff (see CUSTOMS UNION). In addition, a common market provides for the free movement of labour and capital across national boundaries. The aim of a common market is to secure the benefits of international SPECIALIZATION, thereby improving members’ real living standards.
The short- and medium-term impact of the formation of a common market is mainly felt through an increase in trade between member countries. TRADE CREATION is typically associated with a reallocation of resources within the market favouring least-cost supply locations and a reduction in prices resulting from the elimination of tariffs and lower production costs. (See GAINS FROM TRADE.)
In addition, a common market can be expected to promote longer-term (dynamic) changes conducive to economic efficiency through:
- COMPETITION. The removal of tariffs, etc., can be expected to widen the area of effective competition; high-cost producers are eliminated, while efficient and progressive suppliers are able to exploit new market opportunities;
- ECONOMIES OF SCALE. A larger ‘home’ market enables firms to take advantage of economies of large-scale production and distribution, thereby lowering supply costs and enhancing COMPARATIVE ADVANTAGE;
- TECHNOLOGICAL PROGRESSIVENESS. Wider market opportunities and exposure to greater competition can be expected to encourage firms to invest and innovate new techniques and products;
- INVESTMENT and ECONOMIC GROWTH.
Finally, the virtuous circle of rising income per head, growing trade, increased productive efficiency and investment may be expected to combine to produce higher growth rates and real standards of living.