The Nordic Council of Ministers commissioned Copenhagen Economics to assess the economic potential from deeper integration of the nordic markets.
While policy makers endorsed further market integration in the Nordic countries, the practical work of removing barriers faced by citizens and firms when crossing the Nordic borders did not match the ambitions. As a result, cross-border trade and investment and labour mobility were not as important as they could have been. Against this background, the Nordic Council of Ministers desired a quantitative assessment of the economic potential of harmonisation and an analysis of where the potential was greatest.
The effects of further integration depends on the ambition for how much further the decision makers wish to integrate the economies. For this reason, Copenhagen Economics compared cross-border trade and investment in the Nordic countries with those of the US states (being slightly better integrated), and with their levels if the Nordic countries had been a single country (much better integrated). For the comparisons, we used gravity models in order to avoid contamination of the results from outside factors affecting trade in the US such as a common language and geographical distance between states. We also studied proposals for reducing specific barriers, and quantified their effects.
We found that, overall, the Nordic economies were very integrated already, but in specific areas an un-tapped potential remained. For instance, one great home market for venture capital could create a much better environment for investment.
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