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Comparative Advantage and the Welfare Impact of European Integration

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  • Jing Zhang

    (University of Michigan)

  • Andrei A. Levchenko

    (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 75 countries, and compare welfare in the 2000s to a counterfactual scenario in which Eastern European countries are closed to trade. For Western European countries, the mean welfare gain from trade integration with Eastern Europe is 0.1%, ranging from zero for Portugal to 0.35% for Austria. Comparative advantage is a key determinant of the variation in these welfare gains: countries whose comparative advantage is most similar to Eastern Europe tend to gain the least, while countries with technology most different from Eastern Europe gain the most.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 819.

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Date of creation: 2011
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Handle: RePEc:red:sed011:819

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  2. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
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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. Ortega, Francesc & Peri, Giovanni, 2013. "Migration, Trade and Income," IZA Discussion Papers 7325, Institute for the Study of Labor (IZA).
  3. 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.
  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," Working Papers 1213, University of California, Davis, Department of Economics.
  6. Levchenko, Andrei A. & Zhang, Jing, 2014. "Ricardian productivity differences and the gains from trade," European Economic Review, Elsevier, vol. 65(C), pages 45-65.
  7. 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.
  8. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2014. "Panel Data Gravity Models of International Trade," CESifo Working Paper Series 4616, CESifo Group Munich.

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