October 17, 2006

EU accession and income growth: an empirical approach

Toetreding Europese Unie kan tot forse inkomenstoename leiden

Press release
Op lange termijn kan het EU-lidmaatschap substantiële effecten hebben op de economieën van toetredende landen. Zo blijkt uit een historische analyse dat de bilaterale handel tussen EU-landen veel hoger is dan tussen vergelijkbare landen die geen lid zijn van de EU.

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Dick Morks

To gauge the dynamic effects, we follow a two-step procedure in which a gravity equation for bilateral trade shows the trade effect of EU membership and a growth regression yields the income effect of trade. Shared EU membership is found to increase trade between two of its member states with about 34%. EU membership may contribute to trade by inducing countries to improve the quality of their institutions.

Trade increases by another 22% if institutions improve, yielding a total trade increase of 56%. Improved openness increases income by 37.5% according to our estimates. Adding a small direct effect of improved institutions on income, the total income effect of EU membership is 39% for the ten new members. This implies that EU membership, or its effect on trade and institutions, could lead to large economic gains for the new member states, but does not bring them economically on par with the old member states.


Vlado Solanic
Paul Tang

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