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Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement

Author

Listed:
  • Lorenzo Caliendo
  • Luca David Opromolla
  • Fernando Parro
  • Alessandro Sforza

Abstract

The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equilibrium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration ows by skill and nationality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration ows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration.

Suggested Citation

  • Lorenzo Caliendo & Luca David Opromolla & Fernando Parro & Alessandro Sforza, 2017. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," CESifo Working Paper Series 6600, CESifo.
  • Handle: RePEc:ces:ceswps:_6600
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement
      by Christian Zimmermann in NEP-DGE blog on 2017-09-07 20:44:13

    Citations

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    Cited by:

    1. Teti Feodora, 2020. "30 Years of Trade Policy: Evidence from 5.7 Billion Tariffs," ifo Working Paper Series 334, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Joan Monras, 2015. "Economic Shocs and Internal Migration," Sciences Po Economics Discussion Papers 2015-01, Sciences Po Departement of Economics.
    3. Christopher L. House & Christian Proebsting & Linda L. Tesar, 2018. "Quantifying the Benefits of Labor Mobility in a Currency Union," Working Papers 671, Research Seminar in International Economics, University of Michigan.
    4. Hao, Tongtong & Sun, Ruiqi & Tombe, Trevor & Zhu, Xiaodong, 2020. "The effect of migration policy on growth, structural change, and regional inequality in China," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 112-134.
    5. Gancia, Gino & Ponzetto, Giacomo A.M. & Ventura, Jaume, 2020. "A theory of economic unions," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 107-127.
    6. Rodrigo Adão & Costas Arkolakis & Sharat Ganapati, 2020. "Aggregate Implications of Firm Heterogeneity: A Nonparametric Analysis of Monopolistic Competition Trade Models," Working Papers 2020-161, Becker Friedman Institute for Research In Economics.
    7. Bratsberg, Bernt & Moxnes, Andreas & Raaum, Oddbjørn & Ulltveit-Moe, Karen-Helene, 2019. "Opening the Floodgates: Industry and Occupation Adjustments to Labor Immigration," CEPR Discussion Papers 13670, C.E.P.R. Discussion Papers.
    8. Sebastian Heise & Tommaso Porzio, 2019. "Spatial Wage Gaps and Frictional Labor Markets," Staff Reports 898, Federal Reserve Bank of New York.
    9. Karyne B. Charbonneau & Anthony Landry, 2018. "The Trade War in Numbers," Staff Working Papers 18-57, Bank of Canada.
    10. Treb Allen & Cauê de Castro Dobbin & Melanie Morten, 2018. "Border Walls," NBER Working Papers 25267, National Bureau of Economic Research, Inc.
    11. Ahlfeldt, Gabriel & Bald, Fabrian & Roth, Duncan & Seidel, Tobias, 2020. "Quality of life in a dynamic spatial model," CEPR Discussion Papers 15594, C.E.P.R. Discussion Papers.
    12. Nicolas Morales, 2019. "High-Skill Migration, Multinational Companies, and the Location of Economic Activity," Working Paper 19-20, Federal Reserve Bank of Richmond.
    13. Heise, Sebastian & Porzio, Tommaso, 2019. "Spatial Wage Gaps in Frictional Labor Markets," CEPR Discussion Papers 14197, C.E.P.R. Discussion Papers.
    14. Alessandro Sforza & Marina Steininger, 2020. "Globalization in the Time of Covid-19," CESifo Working Paper Series 8184, CESifo.
    15. Zi, Yuan, 2020. "Trade Liberalization and the Great Labor Reallocation," CEPR Discussion Papers 14490, C.E.P.R. Discussion Papers.
    16. Ariel Burstein & Gordon Hanson & Lin Tian & Jonathan Vogel, 2020. "Tradability and the Labor‐Market Impact of Immigration: Theory and Evidence From the United States," Econometrica, Econometric Society, vol. 88(3), pages 1071-1112, May.
    17. Alessandria, George & Bai, Yan & Deng, Minjie, 2020. "Migration and sovereign default risk," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 1-22.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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