DP4720 EU Enlargement and Beyond: A Simulation Study on EU and Russia Integration

Author(s): Pekka Sulamaa , Mika Widgrén

Publication Date: October 2004

Keyword(s): european integration , GTAP model , trade

JEL(s): F14 , F15 , F17

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4720.asp

This Paper examines the economic effects of the opening of the former Soviet Union. The analysis carried out in the Paper is two-fold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, to be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU-Russia integration, on the other hand, has a different impact. To be beneficial for Russia, free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and, if agreed, its implementation difficult.