Integration and transition : scenarios for location of production and trade in Europe

Abstract

Applying a newly developed CGE-model, we present scenarios for the future economic geography of Europe. The model divides the world into ten regions, of which five are European, and there are 14 industries, of which 12 are imperfectly competitive. With a complete input-output structure, the model captures comparative advantage mechanisms as well as intra-industry trade and “new economic geography” agglomeration forces. The simulations focus on successful transformation in Eastern Europe, and on further European or global integration. The results indicate that both transformation and European integration are of great importance for Eastern Europe, while the effects for other European regions are moderate.