Transition without Accession Effects of Differential Integration on Trade and Welfare in Europe. CEPS Working Document No. 169, June 2001

Alcidi, Cinzia and Manzocchi, Stefano. (2001) Transition without Accession Effects of Differential Integration on Trade and Welfare in Europe. CEPS Working Document No. 169, June 2001. [Working Paper]

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Abstract

In the past decade we observed an acceleration of Western European integration, while the transition countries of Central Eastern Europe have not yet become members of the EU. In this paper, we conduct numerical simulations of the consequences of such differential integration within the European economic area using a spatial model of endogenous growth. Three main aspects are analysed: first, we look at the impact of inclusion in, or exclusion from, the EU on the location of “advanced” industries. Second, we consider the consequences for trade and capital flows (foreign direct investment) of the re-location of enterprises due to differential integration. Third, we analyse the welfare effects for insiders and outsiders from a dynamic viewpoint (that is, accounting for different growth regimes and the transition process). We find that, while outsiders always lose in welfare terms relative to insiders if transition is not accounted for, when transition is explicitly introduced it is possible for an outsider to perform better than the insiders. Hence, the model suggests that successful transition might provide a remedy against delayed accession to an integrated area.

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