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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 multisector 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%, rang- ing 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18061.

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Date of creation: May 2012
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Publication status: published as Andrei A. Levchenko & Jing Zhang, 2012. "Comparative advantage and the welfare impact of European integration," Economic Policy, CEPR & CES & MSH, vol. 27(72), pages 567-602, October.
Handle: RePEc:nbr:nberwo:18061

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  1. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Sciences Po Economics Discussion Papers 2013-05, Sciences Po Departement of Economics.
  2. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.
  3. Timmer, Marcel & Stehrer, Robert & Los, Bart & Vries, Gaaitzen J. de, 2012. "Fragmentation, Incomes and Jobs. An analysis of European competitiveness," GGDC Research Memorandum GD-130, Groningen Growth and Development Centre, University of Groningen.
  4. 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.
  5. Francesc Ortega & Giovanni Peri, 2012. "The Effect of Trade and Migration on Income," Working Papers 1213, University of California, Davis, Department of Economics.
  6. Ortega, Francesc & Peri, Giovanni, 2013. "Migration, Trade and Income," IZA Discussion Papers 7325, Institute for the Study of Labor (IZA).
  7. 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.
  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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