European Union enlargement: effects on the Spanish economy

The paper assesses the economic impact on the Spanish economy resulting from European Union enlargement. It outlines the economic situation of the candidate countries, as well as a first qualitative balance of the effects of enlargement. Regional repercussions, attributed to the adjustment of structural and cohesion funds, are discussed in the context of the Community budget and the main characteristics of the way that it has been formulated from 1989 until the end of the current planning period in 2006.

The paper analyses the repercussions of trade adjustment and states that central and eastern European countries benefit from a competitive differential based on labour costs, and the effect of this differential is exacerbated by large multinational companies who are pursuing an aggressive policy of setting up production facilities in these countries. Their implications for the flow of direct foreign investment toward Spain is also analysed.

The paper also studies the effects of enlargement on migratory flows from the candidate countries. It argues that is it not likely that Spain will be the country most affected by migration, given its geographical location and other factors. The paper attempts to transfer these effects of the enlargement to the macroeconomic framework. It suggests ways in which Spain can limit the risks that come with enlargement while making the most of the opportunities it generates.