Transitory adjustment costs and long term welfare effects of an EU-membership: the Norwegian case

Abstract

We employ a large scale macroeconometric model to study transitory adjustment problems and long term welfare effects of a Norwegian EU-membership. Compared to the present European Economic Area (EEA) treaty, accession would primarily require economic reforms in the fields of agriculture, public finance and trade. When we ignore the yearly net contribution of approximately 1 billion ECU (1 per cent of GDP), integrating the Norwegian economy into EU generates a small welfare gain. The results seem to be strongly affected by a long transition period with under-utilisation of resources. With the costs of the net contribution included, we identify a welfare loss. This is especially so if fiscal policy is adjusted to maintain public and current account balances. To investigate the stability of the results when the estimated wage rate response and trade elasticities are altered, we present two sensitivity tests. None of them give us reason to cast doubt on the qualitative conclusions presented.