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Trade and Migration in an Enlarged European Union: A Spatial Analysis

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  • May Justin B

    () (College of William and Mary)

Abstract

One of the most prominent features in the evolution of the European Union (EU) has been its geographical expansion. Using a dynamic general equilibrium approach, this paper predicts the effects of future eastward expansions of the EU on both inter- and intra-national flows of trade and labor. Underlying the simulations is a spatial model of the EU incorporating heterogeneous firms, intra-industry trade, iceberg trade costs, and many possible locations. Locations are populated by a large number of potential firms, and these firms employ labor that varies across countries in its relative skill. The dynamics of the model are such that unprofitable firms are forced to exit in the long run, and workers have the opportunity to migrate in response to steep gradients in real compensation. Novel features of the data used here are that locations are defined in a very precise way and that the simulations take as their starting point a proxy for the actual distribution of economic activity across the European landmass. The model is calibrated to match aggregate trade and migration data from the 2004 enlargement as well as data on exporter characteristics. Simulations of enlargement predict an increase in aggregate exports of potential new members to the previous EU-15 of 4.7 percent of GDP in the five-year period following adoption of the acquis communautaire and net migration flows from potential new members to the previous EU-15 of 1.3 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography.

Suggested Citation

  • May Justin B, 2010. "Trade and Migration in an Enlarged European Union: A Spatial Analysis," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-40, January.
  • Handle: RePEc:bpj:glecon:v:9:y:2010:i:4:n:3
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    References listed on IDEAS

    as
    1. Warin Thierry & Svaton Pavel, 2008. "European Migration: Welfare Migration or Economic Migration?," Global Economy Journal, De Gruyter, vol. 8(3), pages 1-32, September.
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    Cited by:

    1. Hall Joshua C. & Lawson Robert A. & Wogsland Rachael, 2011. "The European Union and Economic Freedom," Global Economy Journal, De Gruyter, vol. 11(3), pages 1-16, September.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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