09.01.09 European Integration and Domestic Regions: A Numerical Simulation Analysis
NUPI Working Paper 749 | 60 pages.
This paper uses large-scale model simulation in order to derive theoretical predictions about how international integration affects regional inequality both across and within nations. The outcome depends on the type of integration; e.g. reduction in transport costs has a different impact from EU enlargement.
Paper to the project “EU Eastern Neighbourhood: Economic Potential and Future Development” (ENEPO)
>> Summary
Does European economic integration create more inequality between domestic regions, or is the opposite true? While former research has asked for a general answer to this question, we argue that such a general answer does not exist and that the outcome depends on the liberalisation scenario. In order to examine this, we need models with higher dimensionality where the question is where and not whether there will be spatial agglomeration. For this purpose, the paper develops a numerical simulation model with nine countries and 90 regions in order to examine the impact of European and international integration on the regions. Eastward extension of European integration is beneficial for old as well as new members, but within countries the impact varies along the east-west axis. Reduction in distance-related trade costs is particularly good for the European peripheries. Each liberalisation scenario has a distinct impact on the spatial income distribution, and there is no general rule telling that integration causes more or less agglomeration.
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