Comparative Advantage and the Welfare Impact of European Integration
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 multisector 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%, rang- ing 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.
We are grateful the editor (Tullio Jappelli), three anonymous referees, Ayhan Kose, Marcelo Olarreaga, and seminar participants at IMF, University of Michigan, 2011 SED (Gent), 2011 ELSNIT (St. Gallen), and 2012 AEA Meetings (Chicago) for helpful suggestions, and to Lin Ma and Aaron Flaaen for excellent research assistance. This is a preliminary version of a paper prepared for the 55th Panel Meeting of Economic Policy, April 2012. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Andrei A. Levchenko & Jing Zhang, 2012. "Comparative advantage and the welfare impact of European integration," Economic Policy, CEPR & CES & MSH, vol. 27(72), pages 567-602, October. citation courtesy of