Membership of the European Union (EU) has had a big positive effect on average incomes in all but one of its member countries. That is the central finding of research by Nauro Campos, Fabrizio Coricelli and Luigi Moretti, to be presented at the Royal Economic Society’s 2014 annual conference. They also find that the more financially developed countries have grown significantly faster after joining the EU.
The study examines data for each EU member to answer the question, ‘what would levels of per capita income and labour productivity be if countries had not joined the EU when they did?’ Among the findings:
· For the average country, average incomes would be 12% lower if they had not joined – and annual rates would have been 1.2 percentage points lower.
· Denmark, Ireland, the UK, Portugal, Poland, Hungary, Estonia and Latvia have benefitted most from EU membership.
· Spain, Austria, Finland, Sweden, Slovenia, Czech Republic, Slovakia and Lithuania have also benefitted financially, but by less.
· Greece is the only country where joining the EU has resulted in lower levels of per capita income.
· The benefits for the UK have slowed down over time, but the benefits for Ireland have not. This suggests that the former benefited more from the single market while the latter did mostly from the euro.
In the wake of the Great Recession and the euro crisis, the intense debate about the economic benefits from European Union (EU) membership may hardly have come as a surprise. What is surprising, however, is how much economic research still lags in terms of quantifying these benefits.
This study presents a new and improved set of estimates. The researchers suggest that, without joining the EU, per capita incomes would have been 12% lower, on average. Moreover, estimated benefits are larger for the 1973 (the UK, Ireland and Denmark) and 2004 (transition countries) enlargements, mixed for the 1980s and modest for the 1995 enlargements, with substantial differences across countries.
There is a disappointingly small literature offering econometric estimates of the benefits from EU membership. More precisely, there are very few papers that answer questions such ‘what would be levels of per capita income if countries had not joined the EU?’ Many believe, incorrectly, that this literature is vast because of the many papers on the benefits from the 1960s trade liberalisation, the single market and the euro. Yet there are few papers on the benefits of membership proper; and the vast majority of these (very few) papers raise forceful warnings about the fragility of their own estimates.
This study uses the method of synthetic counterfactuals to estimate, on a country-by-country basis, the benefits from joining the EU. They estimate counterfactual scenarios that provide answers to the question: ‘what would the levels of per capita GDP and labour productivity be if these countries have not joined the European Union when they did?’
Focusing on the 1973, 1980s, 1995 and 2004 enlargements, they find that the pay-offs from EU membership are positive and substantial, albeit heterogeneous across countries. They estimate large benefits from EU membership for Denmark, Ireland, the UK, Portugal, Poland, Hungary, Estonia and Latvia. Positive but more modest gains were estimated for Spain, Austria, Finland, Sweden, Slovenia, Czech Republic, Slovakia and Lithuania. Greece is the only case for which joining the EU resulted in lower levels of per capita income.
The dynamics of these benefits are also interesting. For example, the benefits for the UK seem to have somewhat slowed down over time while that is not the case for Ireland, which suggests that the former benefited more from the single market while the latter did mostly from the euro.
What is the magnitude of these economic benefits? Using the difference between actual and synthetic counterfactual, the researchers find that per capita incomes would be about 12% lower for the first ten years after EU accession if membership had not occurred. In terms of economic growth, without EU membership, annual rates would have been 1.2 percentage points lower, on average.
Overall, these new estimates indicate that the economic benefits from EU membership are substantial and positive. Despite differences across countries, they suggest that the benefits from EU membership have outweighed costs (except for Greece).
An important related question refers to the factors that have helped countries to exploit more fully their entry into the EU. The initial findings of this study highlight the role of financial development (that is, more financially developed countries growing significantly faster after EU membership.)
Notes for editors:
‘Economic Growth and Political Integration: Synthetic Counterfactuals Evidence from Europe’ by Nauro Campos, Fabrizio Coricelli and Luigi Moretti
For further information, contact:
Nauro Campos, email@example.com , +44 (0) 7742 570 981
Fabrizio Coricelli, firstname.lastname@example.org
Luigi Moretti, email@example.com
Romesh Vaitilingam: firstname.lastname@example.org, +44 7768 661095