European Union Enlargement. Effects on the Spanish Economy

Abstract

In this paper, we assess the economic impact on the Spanish economy resulting from European Union enlargement.

We present a detailed analysis of the process of negotiation for candidate countries and an outline of their economic situation, as well as a first qualitative balance of the effects of enlargement. The main repercussions are discussed and, to the extent that it is possible, an attempt is made to estimate their dimension. Secondly, we turn our attention to regional repercussions. These are attributed to the adjustment of structural and cohesion funds, but the discussion is also framed in the context of the Community budget and the main characteristics of the way that it has been formulated from 1989 until the end of the current planning period in 2006. In order to speak with precision of the effects of enlargement at this level, however, we must (and do) undertake an analysis of the problematic budgetary outlook for the 2007-2013 period.

We examine the repercussions of trade adjustment, which is another source of effects that merit particular attention (and are generally problematic). The Central and Eastern European countries (CEEC) benefit from a competitive differential based on labour costs, and the effect of this differential is being exacerbated by large transnational companies who are pursuing an aggressive policy of setting up production facilities in these countries. Their implications for the flow of direct foreign investment toward Spain is also analysed.

We study the effects of enlargement on migratory flows from the CEEC. Immigration is a pressing issue and the subject of a great deal of concern in Spain, but we argue that is it likely that Spain will be the country most affected by migration, given its geographical location and other factors.

Finally, we attempt to transfer these effects (in regional, trade and direct investment terms) to the macroeconomic framework. This is done by using a series of hypotheses to express these alterations in terms of changes in the exogenous parameters or variables of an econometric model of the Spanish economy. We seek to quantify these effects for the main macroeconomic balances (GDP, employment, prices and salaries, etc.).

We also include an extensive strategic analysis based on the main findings of the study. Particular emphasis is placed on ways in which Spain can limit the risks that come with enlargement while making the most of the opportunities it generates.

Keywords: European Economic Integration, Spain, Econometric Simulations

JEL Classification: C32, F15, F36