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Are there Border Effects in the EU Wage Function?

  • Peter Huber
  • Michael Pfaffermayr
  • Yvonne Wolfmayr

We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effects are identified by a differential impact of other regions purchasing power, depending on whether two regions are located within the EU15 or outside the EU15. We find that intra EU15-borders have an insignificant but external borders a significant effect on regional wage structures. We illustrate the magnitude of EU external border effects by simulating the enlargement of the EU in May 2004. Our results suggest a large impact of the border for new member states, but a relatively small one for old members.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1880.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1880
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