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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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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
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Handle: RePEc:mie:wpaper:626
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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  1. Gianmarco I.P. Ottaviano & Gregory Corcos & Massimo Del Gatto & Giordano Mion, 2009. "Productivity and Firm Selection: Quantifying the “New” Gains from Trade," Working Papers 2009.115, Fondazione Eni Enrico Mattei.
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  16. University of Iowa & Michael E. Waugh, 2007. "International Trade and Income Differences," 2007 Meeting Papers 492, Society for Economic Dynamics.
  17. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Comparative advantage, demand for external finance, and financial development," Policy Research Working Paper Series 3889, The World Bank.
  18. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
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