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Eastern Enlargement of the EU: A Comprehensive Welfare Assessment

This paper takes a welfare-view on eastern enlargement of the EU, focusing on incumbent countries. Enlargement is decomposed into three elements: Single-market integration on commodity markets, budgetary costs from EU-expenditure policies, and single-market-induced migration from new to present member countries. I first use an analytical model to derive a welfare equation that identifies the principle channels for incumbent country welfare gains and losses from enlargement, including product differentiation, capital accumulation, and unemployment due to search-costs. I then propose a method that allows to extend welfare results obtained from a detailed calibrated version of this model for Germany to other incumbent countries. The approach relies on model elasticities extracted from the German model which are then applied to other countries’ idiosyncratic "enlargement-shocks". Constructing detailed indices for such country-specific "enlargement shocks", I arrive at a characteristic inter-country pattern of enlargement-induced welfare effects for all EU15 countries. Aggregating these across countries reveals enlargement to be beneficial for the union as a whole, although several countries stand to suffer welfare losses.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2003-16.

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Date of creation: Dec 2003
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Handle: RePEc:jku:econwp:2003_16
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  1. Wilhelm Kohler & Chrisran Keuschnigg, 2001. "An Incumbent Country View on Eastern Enlargement of the EU. Part II: The Austrian Case," Empirica, Springer, vol. 28(2), pages 159-185, June.
  2. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
  3. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
  4. Christian Keuschnigg & Mirela Keuschnigg & Wilhelm Kohler, 2001. "The German Perspective on Eastern EU Enlargement," The World Economy, Wiley Blackwell, vol. 24(4), pages 513-542, 04.
  5. Wilhelm Kohler & Christian Keuschnigg, 2000. "An Incumbent Country View on Eastern Enlargement of the EU Part I: A General Treatment," Empirica, Springer, vol. 27(4), pages 325-351, December.
  6. Keuschnigg, Christian & Kohler, Wilhelm K., 1998. "Eastern Enlargement of the EU: How much is it Worth for Austria?," CEPR Discussion Papers 1786, C.E.P.R. Discussion Papers.
  7. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  9. Christian Keuschnigg, 1998. "Investment Externalities and a Corrective Subsidy," International Tax and Public Finance, Springer, vol. 5(4), pages 449-469, October.
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