The Eastern Enlargement of the Eurozone and Labour Market Adjustment

This paper analyses the economic effects of the eastern enlargement of the EU both on the existing Member States and the candidate countries using simulation results of a dynamic computable general equilibrium model. In addition to conventional trade policy impacts such as custom union formation and common agricultural policy the effects of factor mobility, induced by institutional changes, are analyzed. The analysis is based on six different scenarios. According to the results EU membership will accelerate growth in output, investment and consumption in the candidate countries in all scenarios. However, it turns out that factor mobility effects dominate those of conventional trade policy. Growth in national income will lag behind GDP growth because profits will be paid out to foreign investors. Migration will slow output growth in the candidate countries and accelerate growth in the existing Member States, while the trends in per capita consumption will be reversed; migration increases per capita consumption in the new Member States and reduces it slightly in the existing ones.