Economic Integration, Union Power, and Growth with Creative Destruction

We construct a Schumpeterian growth model of a common market with following properties. Households can stay as workers or become researchers at some cost. Workers are employed in production and researchers in R&D. Workers are unionized. Intermediate goods are substitutes and their producers are strategically interdependent. The main findings are as follows. Both union power and economic integration promote growth. A common market should accept new members as long as this increases consumption per capita. If economic integration intensifies international competition very much (only a little), then there is political pressure to weaken (strengthen) union power for the elimination of excessive (deficient) growth. Journal of Economic Literature: J50, O40