Joining the EU: Capital Flows, Migration and Wages

What is the impact of joining the European Union on a small, less developed economy? This is the general question driving this research paper. In particular, the role of factor movements in explaining real wage behavior in Portugal after its entry in the European Union (EU) is evaluated. Based on these results, counterfactual exercises are performed to measure the impact of foreign investment and emigration on skilled and unskilled wages between 1985 and 1999. We find a small role for labor movements, and a more important one for capital inflows. This should constitute a good starting point to think about the consequences of the Eastern enlargement of the EU and of other integration experiences that abolish barriers to factor mobility.