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EU integration and outsiders : a simulation study of industrial location

Baldwin, Richard E.; Forslid, Rikard; Haaland, Jan Ingvald Meidell; Midelfart, Karen Helene
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URI
http://hdl.handle.net/11250/162962
Date
2000-02
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  • Discussion papers (SAM) [578]
Abstract
This paper focuses on the location effects of preferential trade areas (PTA) on

non-members. More specifically, using a CGE model calibrated to real data, it focuses on the

impact of tighter European integration on outsider regions. We argue that because theoretical

models analysing PTAs have very few contact points with reality, further research is needed

to evaluate whether the effects highlighted by these models – catastrophic agglomeration and

non-monotonic relocation, for example – are theoretical aberrations of highly specific models,

or important effects that help us explain real world events. In our 14-sector, 10-region

model, we find broad confirmation for the theoretical PTA models, and in particular for the

Puga-Venables effects. We find that tighter European integration has a significant impact on

Central and Eastern European countries, but the impact on the other regions of the world is

rather small. Our findings do however, suggest that the simple models of economic geography

analysing PTAs miss important elements. The most important of these are comparative advantage and real trade costs.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2000:2

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