Abstract

The process of European Union enlargement brings both economic benefits and costs to Eastern European candidate countries. While the latter are in general more visible directly and frequently occur in the short run, the former are more difficult to quantify and not that obvious for the taxpayer or jobholder in a transitional economy going thorough an ample process of reform and restructuring. In this paper, the authors developed a macroeconomic model that provided a methodology for quantifying the benefits and the costs of European integration for a candidate country. By modelling the linkages between the formal, the informal and the public sectors, all viewed as important in terms of size and implications in a transitional economy, as well as by formalising the relationship with the EU, the authors looked at the potential gains, measured in terms of resources transferred from the EU, and costs, consisting of contributions to the EU budget, that can impact on a candidate country. The model was tested by using data from Romania and simulations were built for the next ten years ahead. Based on certain assumptions a level of around 1.2% of GDP of the contribution to the EU budget that is sustainable by the Romanian economy was obtained.
* (The authors are grateful for the support received from the ACE PHARE Program for undertaking this research. A draft of this paper was presented to the participants in the workshop organized in Bucharest at the beginning of April 2002, from whom we have received extensive comments and suggestions. We are extremely grateful to B.Y. Kim, E. Dobrescu, L.L. Albu, G. Duchenne, A. Kolev, M. Kotzeva, and A. McAuley for their pertinent observations).

Key words: formal and informal economy, transition, policy

JEL Classification: H61, O17, C51