Agricultural and economy-wide effects of European enlargement: Modelling the common agricultural policy

The economic impact of extending the Common Agricultural Policy to the Central and Eastern European countries (CEEC) has become a major issue in the European enlargement debate. This paper provides an assessment of the economy-wide effects of European enlargement using a global general equilibrium model where special attention is given to modelling the instruments of the Common Agricultural Policy, the Agenda 2000 proposal and the EU budget. The results indicate a substantial potential for increasing agricultural production in the CEEC. The EU budget will increase significantly and the transfers from EU taxpayers to farmers in the CEEC result in significant welfare gains in the new member countries. In spite of these important transfers the macroeconomic costs for the EU are found to be limited.