A balanced budget exists when tax revenues equal government spending. Within the EU, economic policy dictates that efficiency is achieved when the amount of revenue collected by the government is what is spent in a given period. Hence budget deficits and/or surpluses represent a misallocation that can lead to macroeconomic stability within an economy. As the growth cycle within Europe continued and deepened in 2008/2009, it was clear that macroeconomic objectives for all member states became misaligned and inefficiencies in one country led to destabilization in other countries.

Krueger (1991) also mentions that an important ideal of the EU paradigm within the context of spatial diffusion is that many EU countries have now shifted the chain of command related to international issues downward to local governments and provincial levels. "Issues that were under the auspices of the central government such as border control, customs regulations, trade and investment, and infrastructural development have been embedded in local government policy," (Keech. 2114: 23). This is due to the fact that geographic boundaries are blurred in the wake of increased global policies, and local forces have a better understanding of their international economies, and as such can impose the appropriate policies within the region. As such, shifts in economic order such as is typical with enlargements will lead to concentrated strains across all countries that are members of the EU.

Economic policies within the EU, dictates that all aspects of prices should be controlled by demand and supply activity -- free market capitalism. There should not be any government intervention in the market, since markets and prices should act as a signal and allocating mechanism so that efficiency is attained. Overall, this is the major tenet that has affected the spatial diffusion within the EU as the enlargement has caused markets to no longer be efficient allocators of resources, even the signaling role of markets became skewed, which led to growth markets being somewhat disorganized.

Why do nations trade? What is the role of trade within the logic of EU growth environment? According to Barron "EU trade enables nations to specialize in production processes, enhance their resource productivity, and acquire goods and services" (Barro, 2000: 35). Free trade also identifies that the countries are endowed with different levels of natural, human, and capital resources, hence there has to be a process that allows countries to specialize in their relative strengths, while still being able to access gods and products that their relative endowment of economic resources did not allow them to produce. This process is accomplished via economic trade. As such it creates a necessary link of economies across geographic borders, which are a major aspect of the EU development movement within the EU. Expansions of GDP within the EU region have also been linked to the increased financial issues of the region, although these activities do come with a cost to society. Figure 2 below shows how this has had a cyclical effect on the growth environment. That is, there is evidence that the link with EU growth environment can lead to debt crisis, as shown in panel a, but there are negative effects that can lead to deficiencies and increased unemployment. This is represented graphically with the economic tool of production possibility frontiers, where growth in the realm of EU growth environment, refers to the expansion of the societies productive capacity; this however sometimes results in the spatial diffusion of the population which can lead to social issue surrounding poverty and unemployment.

With free trade it is argued that the world economy can achieve a more efficient allocation of resources. Free trade it is stated also benefits countries through the EU transmission of ideas, that is, new processes can be developed and advanced by trade, which can have a positive 'spillover' effect on the economy. Enlargements however remove this noted transfer of ideas and resources and leads to continual disequilibrium which spills over into the growth environment via the production mechanism.

Cole and Kehoe (1996) show that information exchange is an integral aspect of EU growth environment, since it entails the knowledge, management techniques, and production transfer across geographic borders. This spread of knowledge and technology is usually linked to economic development. In fact the push to be more market oriented has created an enlargement of EU forces and players, due to the geographic enlargement of the regions. See figure 3 below to understand the shift.

* Source: Mobarak (2002): EU...

EU also has the more increased use of global policies, and as such might have a connection between the variables.
Globalization and Growth Intertwined -- Analysing European Enlargement for NEW MEMBER STATES

Deaton and Miller (1995), argue that the enlargement has shaped the growth performance within the EU new member states. By 2025 it is estimated that, two-thirds of humanity will be living in cities and towns, since global policies seem to push opportunities to these areas.

The enlargement is also perpetuated by the affluent in cities surrounded by deprivation and poverty. This is so because the EU new member states growth environment and its trend towards market economies creates huge gaps between the income levels of individual within a society, which is perpetuated within an enlargement. Hence poverty is no longer restricted to isolated areas, but has become dominant in some of the most prominent cities. The EU new member states development of regions has become somewhat spatial, since there are no longer geographic boundaries to determine economic development in regions, since there has been a tremendous increase in the population due to the necessary adjustment of the economy to global policies.

Enlargement has often been revered as the cornerstone of modern economic development, due to the many benefits and positive aspects of the logic of global policies. Nevertheless, there exist many ideals, ideologies, and assumptions that underline the logic of the growth environment and its effect on EU new member states economic principles. Many theorists state that global polices lead to uneven economic resources, and as such cause a diffusion of economic expansions that are not beneficial to the region and is worsened during an enlargement. In addition, the gains from expansion and efficiency are not easily achieved by all parties or individuals in the EU new member states, since some areas have the capacity to readily utilize the gains from the processes, while others do not. Hence this creates a cycle of disproportionate development within certain regions -- again that an enlargement exacerbates. See figure 4 below for a flowchart analysis of the effects mentioned above.

FIGURE 4: OVERVIEW of EU new member states ENLARGEMENT and GROWTH RELATONSHIP

Figure 4 above shows the major aspects of EU new member states growth environment and its effect on the EU new member states development. The focus lies with both positive and negative aspects of the transition process and how institutions and development handle the enlargement implications.

An econometric model will be used to evaluate how the EU enlargement and economic growth are intertwined for the new member states. The focus will be to examine the traditional gross domestic product equation from an aggregate expenditure model and include a proxy for the countries accession within the EU. The idea is to examine how this enlargement has affected the primary measure of production and output relative to other domestic measures of consumption, investment, government spending, and net exports. The analysis will focus on a cross-sectional analysis in 2007 (three years after the enlargement). The cross section will be of the ten member states from Central and Eastern Europe: Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia.

The econometric model is based on the literature with fundamental principle of how growth is affected by trade flows with the net export variable being the proxy for trade flows and openness of economies -- albeit integration.

The modeling will be based on a similar framework such as Roderick, where the GDP equation is measured with a variable for integration to analyze the necessary link between the variables. The overall GDP equation is measured to get a structure for measuring economic performance and then assessing the role or impact of integration in this setting.

The model to be estimated will be based on the theoretical structure of the GDP economic performance model with measures of consumption, investment, government spending, trade flows, and an integration variable explaining GDP in Europe. The modeling if based on the form:

Y = a + bx, with x ? Rn, a ? Rn, b ? Rn Equation 1

With dependent and independent variables as:

ln (GDP) = ?+?1ln (Consumption)+?2ln (Investment )+ ?3ln (Government Spending)+ ?4ln (Trade) +? Equation 2

The data was extracted from national statistics from…