EU Enlargement and Convergence

Economic integration in Europe has been accompanied by concerns about the effect of integration on regional disparities in the European Union. This paper investigates the effects of the most recent EU enlargement on convergence among countries and regions in the EU-27. Departing from a new economic geography framework, we focus on integration effects caused by changes in market access, released by a reduction of trade impediments. Special attention is paid to the catching-up process of the new member states (NMSs) and the development of regional disparities within the East European countries. From 1995 to 2004, the EU integration process was marked by an economic catching-up of the NMSs. At the same time, regional within-country disparities in the NMSs have been increasing. Our simulation analysis shows that trade integration has a strong effect on market potentials in East European regions. Comparatively strong changes in market access are supposed to foster the East European catching-up at the national and regional levels. However, accounting for these integration effects does not significantly alter the findings of our convergence analysis.