Eastern Enlargement of the EU : A Comprehensive Welfare Assessment

This paper takes a welfare-view on eastern enlargement of the EU, focusing on incumbent countries. Enlargement is decomposed into three elements: Single-market integration on commodity markets, budgetary costs from EU-expenditure policies, and singlemarket- induced migration from new to present member countries. I first use an analytical model to derive a welfare equation that identifies the principle channels for incumbent country welfare gains and losses from enlargement, including product differentiation, capital accumulation, and unemployment due to search-costs. I then propose a method that allows to extend welfare results obtained from a detailed calibrated version of this model for Germany to other incumbent countries. The approach relies on model elasticities extracted from the German model which are then applied to other countries´ idiosyncratic "enlargement-shocks". Constructing detailed indices for such country specific "enlargement-shocks", I arrive at characteristic inter-country pattern of enlargement- induced welfare effects for all EU15 countries. Aggregating these across countries reveals enlargement to be beneficial for the union as a whole, although several countries stand to suffer welfare losses.