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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 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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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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