THE EASTERN ENLARGEMENT OF THE EUROPEAN UNION: AN ANALYSIS TRADING PATTERNS, INVESTMENT FLOWS AND THE CHALLENGES AHEAD

The European Union has added ten new members (EU 10) on May 1, 2004. This expansion is unique both in terms of the number of countries involved and their backgrounds. This paper compares the new and old members in economic terms, analyzes historical trading patterns, and looks into foreign direct investment trends as well as the cost of absorbing new members. The results indicate that EU 10 countries have shifted their trade from USSR/Russia through time and the EU has gained prominence both in their exports and imports. FDI inflow into the region has increased dramatically during the last decade and is expected to continue. The cost of absorbing new members will be high. However, in the long-run, both the old and the new members will benefit from this expansion.Presented at the 15th International Conference,Istanbul, Turkey, May 2005.