The Impact of EU Enlargement on Member States:

This paper seeks to analyse the impact of European Union enlargement on accession countries and current EU as a whole, using a Computable General Equilibrium (CGE) model. Its aim is to provide an assessment of the impact of enlargement on the size and efficiency of firms and the varieties of products offered to consumers on the one side, quantify the macroeconomic effects in terms of welfare and factor prices (in particular wages) and gauge which sectors will be most heavily affected and in which countries production is more likely to relocate. It finds that the impact on current EU members is negligible, whereas accession countries will face huge and not always beneficial consequences. Future enlargement raises several concerns in current EU members. The huge disparities between accession countries and current member states in terms of per capita income will have several consequences. Regions currently benefiting from Objective 1 support risk losing EU structural funds, while such inequalities might lead to movements of people and/or relocation of labour intensive industries. However, liberalisation of markets has been developing for at last ten years up to now, and east-west trade patterns have already dramatically changed. The EU is already the main trading partner of the accession countries, and adjustments have taken place, mostly via FDI flows and plant relocation. In the same way, convergence will reduce competitive pressure and enlarge the markets. Lastly, limited migration flows are expected due to the high adjustment that cost immigrants have to bear and to negative network effects, and at least in the short run, by the institutional barrier to labour mobility. All in all the process should be rather smooth for current EU members. The potential impact is much larger for accession countries, which will join a hugely integrated area. It is difficult to assess a priori what will be the behaviour of firms, which will face a dramatic change in the scale of their playing field, in terms of investment, mark