Economic Geography: Theory, Integration and the EU. A Close Examination of the European Union, 1991-2001, and an Estimation of the Gains and Losses for the 2004 Union Expansion.
Young, G. Oliver
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Economic geography takes into account often-neglected factors (distance and trade costs), and also assumes a monopolistically competitive market structure. The results of such analysis are two countervailing groups of incentives for both firms and workers: agglomeration and dispersion forces. These two forces work to form a "U-shaped" agglomeration curve, where agglomeration will occur only at mid-range trade costs. With this analysis in mind the European Union, since 1947, has been on a steady course of integration, altering the costs and benefits of firm location. This paper finds that since 1991 further integration has lead to a decrease in industry agglomeration, a movement away from a core-periphery pattern of firm location. It is our estimation that with the addition of the 10 ascension countries in the spring of 2004, this trend of declining agglomeration will be reversed, at least temporarily, with the implicit 3-tier system of core, semi-core, and periphery breaking down into the more stable core-periphery pattern. This will result in gains for Ireland and possibly Greece, and losses in industry growth and FDI for Spain and Portugal.
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