October 25, 2002

One size fits all? Accession to the internal market; an industry level assessment of EU enlargement

Enlargement of the EU with ten Central and Eastern European Countries is a major item on the EU's policy agenda. Assessing the economic consequences of the accession to the internal market is not obvious. This paper provides a new method to quantify the impact of the accession.

The assessment is based on a gravity-equation, estimated for 16 industries. The estimations exploit the fact that the current EU members already operate in a Single Market since 1992. The estimations provide information on the barriers, at the level of industries, that the Single Market program succeeded to remove. This is used to assess the industry-level impact of enlargement, for the current EU members and for the accession countries.

This approach yields different estimates for the impact of accession to the internal market for the different industries and different countries. The impact of accession to the internal market is notably large in Agriculture, Textiles, Trade Services, Transport Equipment, Non-metallic Minerals and Food Processing. Moreover, the aggregate excess trade within the internal market is comparable to what other studies find. The shock of accession to the internal market is plausibly largest for the accession countries. For the current members of the EU the upcoming enlargement likely has the largest impact for Austria, Greece and Germany.