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Comparative advantage and the welfare impact of European integration

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  • Andrei A. Levchenko
  • Jing Zhang

Abstract

This paper investigates the welfare gains from European trade integration, and the role of comparative advantage in determining the magnitude of those gains. We use a multi-sector Ricardian model implemented on 75 countries, and compare welfare in the 2000s to a counterfactual scenario in which Eastern European countries are closed to trade. For Western European countries, the mean welfare gain from trade integration with Eastern Europe is 0.1%, ranging from zero for Portugal to 0.35% for Austria. Comparative advantage is a key determinant of the variation in these welfare gains: countries whose comparative advantage is most similar to Eastern Europe tend to gain the least, while countries with technology most different from Eastern Europe gain the most.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 27 (2012)
Issue (Month): 72 (October)
Pages: 567-602

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Handle: RePEc:bla:ecpoli:v:27:y:2012:i:72:p:567-602

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References

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  1. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2013. "The global welfare impact of China: Trade integration and technological change," Economics Working Papers 1388, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2009. "Ricardian selection," MPRA Paper 16950, University Library of Munich, Germany.
  3. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  4. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  5. Ina Simonovska & Michael Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," Working Papers 112, University of California, Davis, Department of Economics.
  6. Chang-Tai Hsieh & Ralph Ossa, 2011. "A Global View of Productivity Growth in China," NBER Working Papers 16778, National Bureau of Economic Research, Inc.
  7. Julian di Giovanni & Andrei A. Levchenko, 2008. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," Working Papers 580, Research Seminar in International Economics, University of Michigan.
  8. Serge Shikher, 2012. "Putting industries into the Eaton--Kortum model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(6), pages 807-837, November.
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  13. Andrei A. Levchenko & Jing Zhang, 2011. "The Evolution of Comparative Advantage: Measurement and Welfare Implications," NBER Working Papers 16806, National Bureau of Economic Research, Inc.
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  15. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
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Citations

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Cited by:
  1. Francesc Ortega & Giovanni Peri, 2012. "The Effect of Trade and Migration on Income," NBER Working Papers 18193, National Bureau of Economic Research, Inc.
  2. Timmer, Marcel P. & Los, Bart & Stehrer, Robert & de Vries, Gaaitzen, 2013. "Fragmentation, incomes and jobs: an analysis of European competitiveness," Working Paper Series 1615, European Central Bank.
  3. Andrei A. Levchenko & Jing Zhang, 2012. "Ricardian Productivity Differences and the Gains from Trade," Working Papers 633, Research Seminar in International Economics, University of Michigan.
  4. Ortega, Francesc & Peri, Giovanni, 2014. "Openness and income: The roles of trade and migration," Journal of International Economics, Elsevier, vol. 92(2), pages 231-251.
  5. Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Sciences Po Economics Discussion Papers 2013-05, Sciences Po Departement of Economics.
  6. Ortega, Francesc & Peri, Giovanni, 2013. "Migration, Trade and Income," IZA Discussion Papers 7325, Institute for the Study of Labor (IZA).
  7. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.
  8. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.

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