Deepening Integration in the Food Industry - Prices, Productivity and Export

Abstract: This thesis consists of three papers, all of which deal with the effects of deepening European integration on the food and beverage industry and market. The focus is on the period after Swedish EU membership in 1995. The last two papers use firm data and focus on the Swedish food and beverage industry, an industry which is an interesting case study as it was considered to be protected from foreign competition prior to EU membership. The first paper uses the prices of individual items for EU cities in order to study the impact of the process of integration on the EU food and beverage market. When controlling for distance, language barriers and retail costs, it is shown that a significant border effect has remained in the EU market for food and beverages since 1995. However, the results reveal that the enlargement in 1995 has meant that the new member countries have become rapidly integrated with other EU countries. In addition, price differences may be ascribed, albeit to a lesser extent, to transport distances, as compared to the early 1990s, suggesting that the Single Market Programme has contributed to reducing transport costs. The second paper investigates the impact of EU membership on the productivity of the Swedish food and beverage industry. When trade is liberalized, productivity within an industry is expected to increase for two reasons; firms have larger incentives to reduce slack in management as they face a tougher import competition, and market shares are allocated to the most productive firms that are likely to prosper in the international market. The results find no evidence of an overall productivity growth although productivity increased in sub-industries that already had experience of selling abroad. A conclusion is that firms in the sub-industries that were protected from international competition are hampered by an overcapacity in the more competitive environment. The third paper examines how the export decision among firms in the Swedish food and beverage industry has changed with EU membership. When Sweden became an EU member, tariffs were abolished between Sweden and the other EU countries. Besides, Swedish food regulations had already been harmonised with EC law one year prior to EU membership. The results show that sunk costs for exporting, i.e., irreversible costs for exporting, have become less important since the implementation of the EC food regulations but that they have not been reduced after the year of membership, 1995. The results therefore suggest that the EU has been less successful in reducing trade barriers in the EU food market since the mid-1990s.

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