09.01.09 East-West Integration and the Economic Geography of Europe
NUPI-notat 750 | 52 sider.
Growth in European regions has a distinct pattern during 1995-2006, with higher growth to the west and east of a longitude passing through Germany and Italy. The paper shows how European integration may explain this pattern.
Paper to the project “EU Eastern Neighbourhood: Economic Potential and Future Development” (ENEPO)
>> Summary
Implementation of the European internal market and East-West integration has been accompanied by a dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe’s economic geography. This suggests that the implementation of the European internal market or the Euro has “made Europe smaller”. In Central Europe, the dominance of capital regions tends to eliminate east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
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