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Eastern Enlargement of the EU: A Comprehensive Welfare Assessment

Wilhelm K. Kohler

No 260, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: 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 singlemarket- 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 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.

Keywords: EU Enlargement; Economic Integration; Commercial Policy; Migration; Welfare Analysis; Computable General Equilibrium; Search Unemployment (search for similar items in EconPapers)
JEL-codes: F12 F22 F02 F15 F13 (search for similar items in EconPapers)
Date: 2004
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