The European Union’s Fifth Enlargement, Effects on Trade and Foreign Investment

The recent enlargement of the European Union (EU) to Central and Eastern European countries (CEEC), and to the islands of Malta and Cyprus, is an unparalleled process in the life of the Union given the diversity and economic dimension of the countries involved. The membership of nations evolving from centrally planned to market economies is challenging and requires structural adjustments that are not possible without a high capacity of adaptation on the part of national agents and institutions. In this context, the project Ezoneplus – the Eastward Enlargement of the Eurozone, financed by the European Commission’s 5th framework program, emerged as a large scale research scheme, integrating a set of partners that include, apart from the Department of Economics of Évora University, a number of institutions from old and new EU members. The main objective of this research project was to evaluate the main consequences and implications from EU’s Eastern enlargement, in terms of goods, services and factors’ markets adjustments, and of the functioning of economic policies in the new institutional framework. Specific research tasks were assigned to the different consortium teams, and the Évora team assumed the responsibility of coordinating the research on the expected impacts upon international trade and foreign direct investments (FDI) flows. Within the three year framework of the project many dissemination activities were developed. Six international conferences were organised, various books edited and a number of papers were published in renowned journals. Twenty five working papers were produced and are available in the project’s internet site (http://www.ezoneplus.org/). As expected, the Évora team was deeply committed to this project, producing all the reports requested by the European Commission, and presenting its research results in working papers, in journal articles and in seminars and conferences. The present publication is another dissemination effort and its main purpose is the presentation, in a joint and integral version, of the documents produced on the expected impacts of the EU enlargement, in terms of trade and FDI. For methodological reasons the material is presented in the original form, trying to preserve the texts global coherence amidst the different requirements of the different phases of research. As a result, some statistic data and bibliographic references may have become somewhat out of date. The structure of the publication reflects the time developments of the research, highlighting the concluding elements of the distinct parts of the work developed. In an introductory note the main characteristics of the project are presented. Chapter 1 displays the early research tasks, comprehending our topic’s State of the Art from a theoretical and empirical point of view. It was completed in January 2002. Following this, the empirical assessments were developed, originating a report published by mid 2002, and reproduced in Chapter 2. The last chapter summarises the dynamics of trade and FDI flows during CEEC’ transition and accession to EU. The main opportunities and risks in the context of full membership are identified and an analysis of the future sustainability of new members’ development models is performed. This document, completed in April 2004, identifies some relevant aspects that are susceptible of being targeted for public authorities’ intervention and contains a number of economic policy recommendation