The signing of the Lisbon Treaty on December 13, 2009, transformed the structure of the European Community (EC), which was subsequently renamed the European Union (EU). However, the journey to this historic moment started way back in 1950s, immediately after the Second World War (Wilde, 2012).
Having experienced a catastrophic World War that had been ignited by the animosities among neighbouring countries and the desire to secure lasting peace, six European countries came together to form the European Coal and Steel Community (ECSC). This community was formed under the Paris Treaty in 1951 and it became Europe’s first supranational community. The main objective of ECSC was to enhance peace through political and economic integration (Kaiser et al., 2010).
The six countries were Germany, Belgium, Netherlands, Italy, France, and Luxembourg. To supplement and reinforce the work of ECSC, two more custom unions, the European Economic Community (EEC) and the European Atomic Energy Community (EAEC or Euratom), were formed in 1957 under the Rome Treaty and the Euratom Treaty respectively (Dedman, 2010).
The three communities shared membership and some of their institutions until 1967 when EEC took charge of all the institutions. Nonetheless, ECSC and EAEC retained their legal identity and except for ESCS which was dissolved in 2002 due to the expiry of the Paris Treaty, EAEC is still in operation.
On the other hand, EEC underwent a metamorphosis as time went by and more European countries joined its membership (Wilde, 2012). It was not until November 1993 that EEC was officially renamed European Community (EC) through the Maastricht Treaty.
In addition to acquiring a new name, the community was restructured into three pillars. However, the three pillars of the EC were merged in 2009 when the community was transformed into EU under the Treaty of Lisbon. The EU, as it is known today, is a custom union that has been renamed several times and its mandate has grown and changed over time. But the primary objective of fostering economic and political integration has never changed (Dedman, 2010).
The EU has made a lot of progress in ensuring that there is free movement of capital, goods, services, and people across the borders of its members, who currently stand at twenty-seven. Furthermore, the union has managed to create policies that support a unified market, enhanced agricultural and fish production, and improve regional development (Kaiser et al., 2010). Needless to say, the European Union was awarded the 2012 Nobel Peace Prize for its efforts.
Economic, political, and other several studies have been carried out on EU with the intention of establishing its socio-economic and political impact on its members. Many research studies have been using models to explain the role of EU in the economic development of its subscribers. The Ricardian, specific factors, and factor-proportions models are some of the models that scholars have been using in investigating the performance of the European Union in the context of international trade (Wilde, 2012).
By removing trade barriers and developing a harmonized system of laws, the EU has lowered the cost of international trading within its membership and opened a single market. Moreover, the union has increased the mobility of capital, labour, and other factors of production by eradicating passport controls within many EU states.
The magnitude of the welfare gains accrued from the EU trade integration can be determined through the Ricardian model which puts a lot of emphasis on comparative advantage (Levchenko & Zhang, 2012). Ideally, the differences in technology and natural resources among countries generate comparative advantage. Countries that have a lot in common gain less from each other, and vice versa.
The Ricardian model operates on the assumption that without labour, production is impossible. A research study, based on the Ricardian model, carried out on European trade integration by Levchenko and Zhang (2012) concluded that Eastern Europe countries enjoyed an average welfare gain of 9.23%, while their Western counterparts were lagging behind at 0.16%.
The factor-proportions model, also known as the Heckscher-Ohlin (OH) model, is an improved version of the Ricardian model. Unlike the Ricardian model, this model recognizes both labor and capital as the key factors of production (Martin, 2010). This model does not evaluate the competitive advantages among countries on the basis of their technological differences, because it is assumed that the countries have similar technologies.
Nonetheless, the Heckscher-Ohlin (OH) model assumes that the genesis of comparative advantages stems from the differences in the competitive availability of production factors (Levchenko & Zhang, 2012). The application of this model in the analysis of international trade among the members of EU has consistently produced the same results as the Ricardian model.
Finally, the unified growth theory operates on the notion that capital and labor are responsible for the production of manufactured goods, while agricultural products are generated from labor and land. Therefore, labor is a common requirement in the production of food and non-food goods. This model evaluates the complete system of economic development and the associated driving forces (Martin, 2010).
References
Dedman, M. J. (2010).The origins and development of the European Union 1945-2008: A history of European Integration. (2nd ed.). New York: Routledge.
Kaiser, W., Leucht, B., & Rasmussen, M. (2010). The history of the European Union: Origins of a Trans- and supranational polity 1950-72. New York: Taylor & Francis Group.
Levchenko, A & Zhang, J. (2012). Comparative advantage and the welfare impact of European integration. Web.
Martin, R. L. (2010). A study on the factors of regional competitiveness. Web.
Wilde, R. (2012). History of the European Union. Web.