Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement

66 Pages Posted: 7 Sep 2017

See all articles by Lorenzo Caliendo

Lorenzo Caliendo

Yale University - School of Management

Luca David Opromolla

Bank of Portugal; CEPR; UECE - Research Unit on Complexity in Economics

Fernando Parro

Johns Hopkins University

Alessandro Sforza

London School of Economics & Political Science (LSE) - London School of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 5, 2017

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 equilibrium 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 ows by skill and nationality 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 ows 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.

Suggested Citation

Caliendo, Lorenzo and Opromolla, Luca David and Parro, Fernando and Sforza, Alessandro, Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement (August 5, 2017). CESifo Working Paper Series No. 6600, Available at SSRN: https://ssrn.com/abstract=3032874 or http://dx.doi.org/10.2139/ssrn.3032874

Lorenzo Caliendo

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://faculty.som.yale.edu/lorenzocaliendo

Luca David Opromolla (Contact Author)

Bank of Portugal ( email )

Rua Francisco Ribeiro 2
Lisbon, 1150-165
Portugal

CEPR ( email )

London
United Kingdom

UECE - Research Unit on Complexity in Economics ( email )

ISEG/UTL Rua Miguel Lupi 20
Lisboa, 1249-078
Portugal

Fernando Parro

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Alessandro Sforza

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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