Working Paper: NBER ID: w18061
Authors: Andrei A. Levchenko; Jing Zhang
Abstract: 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.
Keywords: European integration; welfare gains; comparative advantage
JEL Codes: F11; F14; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Comparative advantage (F11) | Welfare gains for Eastern European countries (D69) |
| Technological similarity to Western Europe (O52) | Welfare gains for Eastern European countries (D69) |
| Trade costs (F19) | Welfare gains for Western European countries (D69) |
| Technological similarity to Western Europe (O52) | Welfare gains for Eastern European countries (less gain) (D69) |
| Deeper integration within Western Europe (F55) | Greater welfare benefits (I39) |