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Comparative Advantage and the Welfare Impact of European Integration

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  • Andrei A. Levchenko

    (University of Michigan and NBER)

  • Jing Zhang

    (University of Michigan)

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 79 countries, and compare welfare in the 2000s to a counterfactual scenario in which East European countries are closed to trade. For West European countries, the mean welfare gain from trade integration with Eastern Europe is 0.16%, ranging from zero for Portugal to 0.4% for Austria. For East European countries, gains from trade are 9.23% at the mean, ranging from 2.85% for Russia to 20% for Estonia. For Eastern Europe, comparative advantage is a key determinant of the variation in the welfare gains: countries whose comparative advantage is most similar to Western Europe tend to gain less, while countries with technology most different from Western Europe gain the most.

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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 626.

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Length: 47 pages
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Handle: RePEc:mie:wpaper:626

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: European integration; Ricardian models of trade; welfare; comparative advantage;

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References

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  1. Kei-Mu Yi & Jing Zhang, 2010. "Structural Change in an Open Economy," Working Papers 595, Research Seminar in International Economics, University of Michigan.
  2. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  3. Davin Chor, 2008. "Unpacking Sources of Comparative Advantage: A Quantitative Approach," Working Papers 13-2008, Singapore Management University, School of Economics.
  4. Sam Kortum & John Romalis & Brent Neiman & Jonathan Eaton, 2010. "Trade and the Global Recession," 2010 Meeting Papers 1340, Society for Economic Dynamics.
  5. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  6. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
  7. 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.
  8. 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.
  9. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2013. "The global welfare impact of China: trade integration and technological change," Working Paper Series WP-2013-08, Federal Reserve Bank of Chicago.
  10. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
  11. Do, Quy-Toan & Levchenko, Andrei A., 2007. "Comparative advantage, demand for external finance, and financial development," Journal of Financial Economics, Elsevier, vol. 86(3), pages 796-834, December.
  12. Andrei A. Levchenko & Julian di Giovanni, 2009. "Putting the Parts together," IMF Working Papers 09/181, International Monetary Fund.
  13. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  14. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
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  17. 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.
  18. Corocs Gregory & Massimo Del Gatto & Giordano Mion & Gianmarco I P. Ottaviano, 2009. "Productivity and firm selection: quantifying the "new" gains from trade," LSE Research Online Documents on Economics 33249, London School of Economics and Political Science, LSE Library.
  19. Chang-Tai Hsieh & Ralph Ossa, 2011. "A Global View of Productivity Growth in China," NBER Working Papers 16778, National Bureau of Economic Research, Inc.
  20. repec:cge:warwcg:13 is not listed on IDEAS
  21. Chang-Tai Hsieh & Ralph Ossa, 2011. "A Global View of Productivity Growth in China," Global COE Hi-Stat Discussion Paper Series gd10-166, Institute of Economic Research, Hitotsubashi University.
  22. 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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  24. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Andrei A. Levchenko & Jing Zhang, 2013. "Ricardian Productivity Differences and the Gains from Trade," NBER Working Papers 19641, National Bureau of Economic Research, Inc.
  2. Marcel P. Timmer & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2013. "Fragmentation, incomes and jobs: an analysis of European competitiveness," Economic Policy, CEPR & CES & MSH, vol. 28(76), pages 613-661, October.
  3. Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Sciences Po publications 2013-05, Sciences Po.
  4. 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.
  5. Francesc Ortega & Giovanni Peri, 2012. "The Effect of Trade and Migration on Income," NBER Working Papers 18193, National Bureau of Economic Research, Inc.
  6. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.
  7. Ortega, Francesc & Peri, Giovanni, 2013. "Migration, Trade and Income," IZA Discussion Papers 7325, Institute for the Study of Labor (IZA).
  8. 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.

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