Market Integration and Legal Federalism in the EU

It is still an open and controversially discussed question to what extent harmonisation and centralisation of policies and regulations are necessary for the Internal Market of the EU. In this paper I argue that from an economic perspective the problem of market integration should not be analyzed only from the economic theory of international trade (with the main idea of removing non-tariff barriers to trade) but also from the economic theory of legal federalism, which also takes into account the advantages and problems of centralisation and decentralisation of policies and regulatory powers as well as regulatory competition. After a critical discussion of the economic concept of market integration (based upon international trade theory), an analytical framework for analyzing the optimal vertical allocation of regulatory powers (based upon economics of legal federalism) is presented, and briefly applied to the examples of corporate law and competition law