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Growth Effects of Economic Integration: Evidence from the EU Member States
Harald Badinger
University of Economics and Business Administration, Vienna
Abstract: After compiling an index of economic integration that accounts for global (GATT) as well as regional (European) integration of the EU member states we test for permanent and temporary growth effects in a growth accounting framework, using a panel of fteen EU member states over the period 19502000. While the hypothesis of permanent growth effects is rejected, the resultsthough not completely robust to controlling for time-specic effectssuggest sizeable level effects: GDP per capita of the EU would be approximately one-fth lower today if no integration had taken place since 1950. JEL no. C33, F15, F43, O52Keywords: Economic growth; economic integration; European Union; panel data
1 Introduction
The second half of the twentieth century was characterized by unprecedented progress in both global and regional economic integration. The development of the European Unions (EU) external and internal economic relationships mirrors these two overlapping processes. Global economic integration, here mainly considered as trade liberalization in the framework of the General Agreement on Tariffs and Trade (GATT), led to a reduction in the EUs (formerly the European Communitys (EC)) harmonized external tariff from some 17 per cent in 1968 down to 3.6 per cent in 2000. Within the same time, the EC expanded from six members originally to 15 members. These member states not only completely liberalized their intra-trade relations, but also established a Single Market, introduced a single currency, installed common institutions (European Council, European Commission, European Court of Justice) with considerable supranational competencies and adopted common or co-ordinated policies in several important areas
Remark: I wish to thank Fritz Breuss for a number of helpful comments on an earlier draft. This paper has also beneted much from the comments of an anonymous referee. Please address correspondence to Harald Badinger, Europainstitut, Wirtschaftsuniversitt Wien, Althanstrae 39-45/2/3, A-1090 Wien; e-mail: [email protected]
2005 Kiel Institute for World Economics DOI: 10.1007/s10290-005-0015-y
Badinger: Growth Effects of Economic Integration 51
(such as monetary policy, external trade, agriculture, competition, energy etc.)
A question of great interest not only from an academic point of view but also from an economic policy and public perspective relates to the consequences of this process for economic growth and...