The Enlargement Problematic: Heterogeneity, Catching up and Convergence

At first sight, the opening up of Central and Eastern European countries (CEECs) unleashes unprecedented potential for accelerated growth and enhanced competitiveness across Europe. By rendering ‘readily’ available markets and cheap skilled labour, liberalisation enables Western firms to realise economies of scale and scope as well as providing the opportunity to relocate those segments of the production process which are no longer competitively produced in their domestic economies. At the same time, the process is expected to offer CEECs’ firms much needed access to markets, capital and technology. This is a rosy picture of a game where each player apparently has something to gain. But a less optimistic version is equally possible. What if Western firms seize market shares, local firms are locked into loww age specialisation patterns, and no substantial capital and technology, let alone knowledge, is transferred, with the result that local firms are not competitive enough to take advantage of trade liberalisation? Alternatively, howabout the possibility of massive imports of ‘sensitive goods’ and waves of immigration disrupting Western markets with the relocation of Western production to the East potentially causing a significant increase of unemployment in the economies of the European Union (EU)?