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The Costs and Benefits of Eastern Enlargement: The Impact on the EU and Central Europe

Richard E. Baldwin, Joseph F. Francois, Richard Portes, Dani Rodrik and István P. Székely
Economic Policy
Vol. 12, No. 24 (Apr., 1997), pp. 125-176
Stable URL: http://www.jstor.org/stable/1344733
Page Count: 51
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The Costs and Benefits of Eastern Enlargement: The Impact on the EU and Central Europe
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Abstract

Eastern enlargement of the EU is a central pillar in Europe's post-Cold War architecture. Keeping the eastern countries out seriously endangers their economic transition, and economic failure in the east could threaten peace and prosperity in western Europe. The perceived economic costs and benefits will dictate the enlargement's timing. There are four parts to the calculus -- the costs and the benefits in the east and in the west. Here we break new ground in estimating the economic benefits of enlargement for east and west using simulations in a global applied general equilibrium model. Our analysis includes a scenario in which joining the EU significantly reduces the risk premium on investment in the east -- with resulting huge benefits to the new entrants. We also review the existing literature on the EU budget costs and arrive at a surprisingly well-determined 'consensus' estimate, which we support with a new political economy analysis of the budget. The bottom line is unambiguous and strongly positive: enlargement is a very good deal for both the EU incumbents and the new members.

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