EU enlargement and the internal geography of countries

This paper focuses on the relation between economic integration and the location of economic activity in a country. We extend a new economic geography model in which trade liberalization affects both the agglomeration and dispersion forces that shape the spatial equilibrium. We show that integration generally fosters spatial concentration in the region that has a pronounced advantage in terms of its access to international markets, unless competitive pressure from foreign firms is too high. Our results shed light on the optimal currency area debate concerning the enlarged European Union. (C) 2004 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.