Extending the EU Single Market Eastwards: Sectoral Trade and Real Wage Effects
AbstractIn this paper we address the question of the impact of permitting free migration in an enlarged trading bloc. We estimate two sectoral equations for trade flows and real wages of three regional blocs of the enlarged EU that we defined as North (wealthiest EU), South (Greece, Portugal and Spain) and East (acceding Central and Eastern European countries). We then use the estimated coefficients to compute potential trade flows and real wages for these three groups under the two alternative scenarios of an enlargement with and without free movement of labour. A fully-fledge Single Market allows the North, with good market access and human capital endowments, to consolidate its current hub position by attracting more firms and skilled workers. Thus its net exports of high scale economy, skill-intensive goods increase and so do overall real wages, though they decrease in low scale economies sectors. The South, with poor market access and human capital endowments, retains competitiveness in low scale economies, low skill-intensity sectors and sees an overall reduction in real wages, except in high scale economies, low skill-intensity sectors. The East, with poor market access but well endowed in human capital, has a marginal gain in trade terms but suffers a real wage loss. Moreover, skilled migration would cause a brain drain that, if of sufficiently large proportions, could have very damaging consequences in the long-term.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2003_10.
Date of creation: Oct 2003
Date of revision: Oct 2003
Contact details of provider:
Postal: Loughborough, Leicestershire, LE11 3TU
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
More information through EDIRC
EU enlargement; gravity model; human capital; labour demand; migration; wage equation;
Other versions of this item:
- Helena Marques & Hugh Metcalf, 2004. "Extending The EU Single Market Eastwards: Sectoral Trade And Real Wage Effects," Royal Economic Society Annual Conference 2004 127, Royal Economic Society.
- F1 - International Economics - - Trade
- F15 - International Economics - - Trade - - - Economic Integration
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- L6 - Industrial Organization - - Industry Studies: Manufacturing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary L. Hunt & Richard E. Mueller, 2002. "A Methodology for Estimating Returns to Skills for Canadian Provinces and U.S. States," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 127-143.
- Michael Freudenberg & Michaël Pajot & Lionel Fontagné, 1999.
"Le potentiel d'échanges entre l'Union européenne et les PECO. Un réexamen,"
Presses de Sciences-Po, vol. 0(6), pages 1139-1168.
- Lionel Fontagné & Michael Freudenberg & Michaël Pajot, 1999. "Le potentiel d'échanges entre l'Union européenne et les PECO. Un réexamen," Revue Économique, Programme National Persée, vol. 50(6), pages 1139-1168.
- Wang, Z.K. & Winters, L.A., 1992.
"The Trading Potential of Eastern Europe,"
92-21, Department of Economics, University of Birmingham.
- Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
- Cheikbossian, G. & Maurel, M., 1997.
"The New Geography of Eastern European Trade,"
DELTA Working Papers
97-11, DELTA (Ecole normale supérieure).
- Baldwin, R.E. & Forslid, R. & Haaland, J.I. & Knarvik, K.H.M., 2000. "EU Integration and Outsiders. A Simulation Study of industrial Location," Papers 2/2000, Norwegian School of Economics and Business Administration-.
- Gros, Daniel & Gonciarz, Andrzej, 1996. "A note on the trade potential of Central and Eastern Europe," European Journal of Political Economy, Elsevier, vol. 12(4), pages 709-721, December.
- Nicolas Péridy & Michael Frudenberg & Lionel Fontagné, 1998. "Commerce international et structures de marché : une vérification empirique," Économie et Prévision, Programme National Persée, vol. 135(4), pages 147-167.
- Paul Krugman, 1990.
"Increasing Returns and Economic Geography,"
NBER Working Papers
3275, National Bureau of Economic Research, Inc.
- Gordon H. Hanson, 1998.
"Market Potential, Increasing Returns, and Geographic Concentration,"
NBER Working Papers
6429, National Bureau of Economic Research, Inc.
- H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
- Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
- Claudia M. Buch & Daniel Piazolo, 2000.
"Capital and Trade Flows in Europe and the Impact of Enlargement,"
Kiel Working Papers
1001, Kiel Institute for the World Economy.
- Buch, Claudia M. & Piazolo, Daniel, 2001. "Capital and trade flows in Europe and the impact of enlargement," Economic Systems, Elsevier, vol. 25(3), pages 183-214, September.
- Dieter Schumacher, 1995.
"Impact on German Trade of Increased Division of Labour with Eastern Europe,"
Discussion Papers of DIW Berlin
116, DIW Berlin, German Institute for Economic Research.
- Schumacher, D., 1995. "Impact on German Trade of Increased Division of Labor with Eastern Europe," Papers 6, American Institute for Contemporary German Studies-.
- Fritz Breuss & Peter Egger, 1999. "How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses?," Empirica, Springer, vol. 26(2), pages 81-94, June.
- Havrylyshyn, Oleh & Pritchett, Lant, 1991. "European trade patterns after the transition," Policy Research Working Paper Series 748, The World Bank.
- Anthony Venables, 2001.
"Geography and International Inequalities: The Impact of New Technologies,"
Journal of Industry, Competition and Trade,
Springer, vol. 1(2), pages 135-159, June.
- Anthony J. Venables, 2001. "Geography and International Inequalities: the Impact of New Technologies," CEP Discussion Papers dp0507, Centre for Economic Performance, LSE.
- Stephen Redding & Anthony J. Venables, 2001.
"Economic Geography and International Inequality,"
- Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," CEP Discussion Papers dp0495, Centre for Economic Performance, LSE.
- Redding, Stephen J & Venables, Anthony J., 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
- Corado, Cristina, 1994. "Textiles and Clothing Trade with Central and Eastern Europe: Impact on Members of the EC," CEPR Discussion Papers 1004, C.E.P.R. Discussion Papers.
- Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
- Vassilis Monastiriotis, 2002. "Human capital and wages: evidence for external effects from the UK regions," Applied Economics Letters, Taylor and Francis Journals, vol. 9(13), pages 843-846.
- Black,Stanley W., 2008.
"Europe's Economy Looks East,"
Cambridge University Press, number 9780521088237, October.
- Cadot, Olivier & de Melo, Jaime, 1994. "The Europe Agreements and EC-LDC Relations," CEPR Discussion Papers 1001, C.E.P.R. Discussion Papers.
- Vittas, H. & Mauro, P., 1995. "Potential Trade with Core and Periphery: Industry Differences in Trade Patterns," Papers 10, American Institute for Contemporary German Studies-.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards).
If references are entirely missing, you can add them using this form.