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Comparative advantage and the welfare impact of European integration

  • Andrei A. Levchenko
  • Jing Zhang

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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Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 27 (2012)
Issue (Month): 72 (October)
Pages: 567-602

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Handle: RePEc:bla:ecpoli:v:27:y:2012:i:72:p:567-602
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