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Macroeconomic Effects of EU Enlargement on Old and New Members

  • Fritz Breuss

    (WIFO)

Recalculating the macroeconomic effects of EU enlargement based on a global model ("Oxford Economic Forecasting") has found that this step towards integration will produce a win-win situation for both sides (CEECs and EU). In view of the difference in importance between markets (the EU sells only 5 percent of its total exports to the CEEC 10, whereas two-thirds of the total CEEC 10 exports flow into the EU), and the dimensions of the two blocks (the CEEC 10 have a GDP of just 10 percent of that of the EU 15), the gains for the CEECs will be tenfold those of the EU in general. Hungary and Poland may be able to boost their real GDP by some 8 to 9 percent within ten years of enlargement, which translates into an additional annual economic growth of 1 percent. The Czech Republic is likely to profit at a slightly lower level (5 to 6 percent in additional real GDP within ten years). The EU can raise its real GDP by about 0.5 percent within six years (2005–2010), or slightly less than 0.1 percentage point per year. Countries which already have close trading ties with the CEECs (such as Austria, Germany and Italy) will win more than the EU average. In Austria, the (cumulated) real GDP can be pushed up by ¾ percentage point, or by 0.15 percent per year. For some EU countries, the cost of enlargement will exceed their benefits: this applies in particular to Spain, Portugal and Denmark. Considering that the three CEECs explicitly studied in the report (Poland, Czech Republic, Hungary) make up about two-thirds of the absolute GDP of the CEEC 10, the calculated GDP effects in the case of EU enlargement by 10 CEECs can – as a rule of thumb – be raised by about a third in the east and west. But EU enlargement must not be seen as a "job generation machine". If enlargement of the single market should lead to productivity shocks and more intense competition, employment should be expected to slow down temporarily. The model was based on the underlying assumption that no transition rules will be adopted to restrict the free movement of labour. If such rules should be introduced (which is the case in Germany and Austria), the immigration surplus in the EU computed in this study would be correspondingly lower.

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Article provided by WIFO in its journal WIFO-Monatsberichte.

Volume (Year): 74 (2001)
Issue (Month): 11 (November)
Pages: 655-666

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Handle: RePEc:wfo:monber:y:2001:i:11:p:655-666
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  1. Arndt, Sven & Handler, Heinz & Salvatore, Dominick, 2000. "Eastern enlargement: the sooner, the better?," MPRA Paper 44943, University Library of Munich, Germany.
  2. George J. Borjas, 1994. "The Economic Benefits from Immigration," NBER Working Papers 4955, National Bureau of Economic Research, Inc.
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