Trade and Migration in an Enlarged European Union: A Spatial Analysis
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Justin B May
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 4.7 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 1.3 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Does FDI Accelerate Economic Growth? The OECD Experience Based on Panel Data Estimates for the Period 1980-2004
- Structural Changes, Causality, and Foreign Direct Investments: Evidence from the Asian Crises of 1997
- Trade and Migration in an Enlarged European Union: A Spatial Analysis
- The Sustainability of the U.S. Current Account Deficit: Revisiting Mann's Rule
- What's New in Our World?
- Touching the Brakes after the Crash: A Historical View of Reserve Accumulation and Financial Integration
- Long-Term Fundamentals of the 2008 Economic Crisis
- Bilateral Trade Balance, Exchange Rates, and Income: Evidence from Malaysia
- The Macro Dimensions of Chile's Export Dilemma
