The Regional Impact of EU Association Agreements: Lessons for the ENP from the CEE Experience

Abstract

The Eastern Enlargement of the EU saw a proliferation of association agreements with countries in the ‘near abroad’ under EU’s European Neighbourhood Policy framework. Although such agreements are considered to be strictly welfare-enhancing, there is very little evidence to show their economic effects, including their distributional consequences across space, separately from other concurrent processes (transition, internationalisation, capital deepening, etc). This paper draws on the experience of pre-accession agreements in Central and Eastern Europe to estimate the effect that such agreements had on regional growth, and thus on the long-run evolution of regional disparities, in the associated countries. We apply an event-analysis and exploit the country variation in the timing of these agreements to identify their distinctive effect on regional growth, using regional data at the NUTS3 levels covering the period from the early transition phase (1991/92) until the eruption of the financial crisis (2008). Our results provide strong evidence that EU association agreements accelerate growth; but show that this is far from evenly distributed across space – with denser, larger and more diversified regional economies gaining the most. We discuss what these findings imply for regional growth and spatial imbalances in the new wave of associated countries under the ENP.

Keywords: association agreements, event analysis, regional growth, Central Eastern Europe

JEL Classification: F15, F55, R11, R15, O43