The EU’s New Economic Geography after the Eastern Enlargement

Using a centre-two periphery new economic geography model we study the location and real wage effects of the EU’s Eastern enlargement on current and future EU member countries under pure trade integration and with migration of skilled labour. The quality of final and intermediate products differs across countries according to their effective endowments of human capital engaged in R&D. Allowing for migration prevents the relocation of firms into the integrating periphery. Moreover, the location of firms differs according to the sectors’ skill and R&D intensity, low skill and low R&D firms tending to locate in the Eastern and Southern peripheries.