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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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    Bibliographic Info

    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. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
    2. 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.
    3. repec:fth:iniesr:430 is not listed on IDEAS
    4. Raul Livas Elizondo & Paul Krugman, 1992. "Trade Policy and the Third World Metropolis," NBER Working Papers 4238, National Bureau of Economic Research, Inc.
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    8. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
    9. Ross, Matthias, 2001. "Transfers, agglomeration and German unification," HWWA Discussion Papers 144, Hamburg Institute of International Economics (HWWA).
    10. Krugman, Paul & Venables, Anthony J., 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
    11. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
    12. Brakman, Steven & Garretsen, Harry, 1993. "The Relevance of Initial Conditions for the German Unification," Kyklos, Wiley Blackwell, vol. 46(2), pages 163-81.
    13. 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 52, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    14. Forslid, Rikard, 2003. "Regional Policy, Integration and the Location of Industry," Research Papers in Economics 2003:7, Stockholm University, Department of Economics.
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