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Comparative Advantage and the Welfare Impact of European Integration

  • Andrei A. Levchenko

    (University of Michigan and NBER)

  • Jing Zhang

    (University of Michigan)

This paper investigates the welfare gains from European trade integration, and the role of comparative advantage in determining the magnitude of those gains. We use a multi-sector Ricardian model implemented on 79 countries, and compare welfare in the 2000s to a counterfactual scenario in which East European countries are closed to trade. For West European countries, the mean welfare gain from trade integration with Eastern Europe is 0.16%, ranging from zero for Portugal to 0.4% for Austria. For East European countries, gains from trade are 9.23% at the mean, ranging from 2.85% for Russia to 20% for Estonia. For Eastern Europe, comparative advantage is a key determinant of the variation in the welfare gains: countries whose comparative advantage is most similar to Western Europe tend to gain less, while countries with technology most different from Western Europe gain the most.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r626.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 626.

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Length: 47 pages
Date of creation: 08 Mar 2012
Date of revision:
Handle: RePEc:mie:wpaper:626
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