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Trade and migration: a U-shaped transition in Eastern Europe

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  • Cristobal, Adolfo
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    Abstract

    This paper proposes a 2-country 3-region economic geography model that can account for the most salient stylized facts experienced by Eastern European transition economies during the 1990s. In contrast to the existing literature, which has favored technological explanations, trade liberalization and factor mobility are the only driving forces. The model correctly predicts that in the first half of the decade trade liberalization led to divergence in GDP per capita, both between the West and the East and within the East. Consistent with the data, in the second half of the decade, internal labor mobility in the East reversed this process, and convergence became the dominant force. The model furthermore shows that the same U-shaped pattern applies to relative industrialization of West and East, although within the East the hinterland continued to lose industry throughout the decade.

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    File URL: http://mpra.ub.uni-muenchen.de/3446/
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3446.

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    Date of creation: 07 Jun 2007
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    Handle: RePEc:pra:mprapa:3446

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    Keywords: Trade liberalization; migration; convergence; welfare;

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    1. Brakman, Steven & Garretsen, Harry, 1993. "The Relevance of Initial Conditions for the German Unification," Kyklos, Wiley Blackwell, vol. 46(2), pages 163-81.
    2. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 857-80, November.
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    6. Puga, Diego & Venables, Anthony J, 1998. "Trading Arrangements and Industrial Development," World Bank Economic Review, World Bank Group, World Bank Group, vol. 12(2), pages 221-49, May.
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    8. Dimitris Kallioras & George Petrakos & Georgios Fotopoulos, 2005. "Economic integration, regional structural change and cohesion in the EU new member-states," ERSA conference papers ersa05p383, European Regional Science Association.
    9. Luca De Benedictis & Roberta De Santis & Claudio Vicarelli, 2005. "Hub-and-Spoke or else? Free trade agreements in the “enlarged” European Union," ISAE Working Papers, ISTAT - Italian National Institute of Statistics - (Rome, ITALY) 52, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    10. Ross, Matthias, 2001. "Transfers, agglomeration and German unification," HWWA Discussion Papers 144, Hamburg Institute of International Economics (HWWA).
    11. repec:fth:iniesr:430 is not listed on IDEAS
    12. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    13. Forslid, Rikard, 2003. "Regional Policy, Integration and the Location of Industry," Research Papers in Economics 2003:7, Stockholm University, Department of Economics.
    14. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
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