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Goods and factor market integration: a quantitative assessment of the EU enlargement

Caliendo, Lorenzo, Opromolla, Luca David, Parro, Fernando and Sforza, Alessandro (2017) Goods and factor market integration: a quantitative assessment of the EU enlargement. CEP Discussion Papers (CEPDP1494). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equi- librium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration flows by skill and na- tionality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration flows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2017 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
J Political Science > JV Colonies and colonization. Emigration and immigration. International migration
JEL classification: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation)
F - International Economics > F1 - Trade > F13 - Commercial Policy; Protection; Promotion; Trade Negotiations; International Trade Organizations
F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J61 - Geographic Labor Mobility; Immigrant Workers
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 30 Jan 2018 14:10
Last Modified: 16 Oct 2019 23:27
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/86586

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