Comparative Advantage and the Welfare Impact of European Integration

48 Pages Posted: 12 May 2012 Last revised: 8 May 2023

See all articles by Andrei A. Levchenko

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jing Zhang

University of Michigan at Ann Arbor

Date Written: May 2012

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.

Suggested Citation

Levchenko, Andrei A. and Zhang, Jing, Comparative Advantage and the Welfare Impact of European Integration (May 2012). NBER Working Paper No. w18061, Available at SSRN: https://ssrn.com/abstract=2056689

Andrei A. Levchenko (Contact Author)

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Jing Zhang

University of Michigan at Ann Arbor ( email )

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Ann Arbor, MI 48109
United States

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