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

Listed author(s):
  • Justin B. May

    ()

    (Department of Economics, College of William and Mary)

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 4.8 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 1.1 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography.

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File URL: http://economics.wm.edu/wp/cwm_wp64.pdf
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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 64.

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Length: 43 pages
Date of creation: 31 Oct 2007
Handle: RePEc:cwm:wpaper:64
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  1. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  2. Warin Thierry & Svaton Pavel, 2008. "European Migration: Welfare Migration or Economic Migration?," Global Economy Journal, De Gruyter, vol. 8(3), pages 1-32, September.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  5. repec:hhs:iuiwop:430 is not listed on IDEAS
  6. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
  7. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
  8. Francis Kramarz & Jonathan Eaton & Samuel Kortum, 2005. "An Anatomy of International Trade: Evidence from French Firms," 2005 Meeting Papers 197, Society for Economic Dynamics.
  9. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741 Elsevier.
  10. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
  11. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  12. Baldwin, Richard E., 1995. "The Eastern enlargement of the European Union," European Economic Review, Elsevier, vol. 39(3-4), pages 474-481, April.
  13. Andrew B. Bernard & J. Bradford Jensen, 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," NBER Working Papers 6272, National Bureau of Economic Research, Inc.
  14. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
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