Trade Liberalization with Eastern Nations. How Sensitive

Abstract

This paper analyses the political economy of trade liberalization by the European Community towards Eastern nations. We identify the sectors that are both sensitive and politically effective. We find that Eastern nations may have a comparative advantage in industries that use capital and (relatively) unskilled labour intensively. We suggest that a shift in the distribution of income away from capital and labour in favour of human capital and regional distribution may drive the political economy of protection in the North of Europe. By contrast, the protection of specific factors may be the most important element in the South of Europe.