Does European Union Really Matter for Long-Run Growth and Development? In Search of the Missing Counterfactual

Abstract

In the European political discourse, the potentially vast economic benefits derived from the European Union are taken for granted. In the academic debate, these economic benefits, even if measured in terms of GDP per capita growth, are much less consensual. There are severe methodological limitations to estimating the economic impacts of the European Union, namely the lack of a sound counterfactual. Making use of synthetic control methodology, we construct estimate the counterfactual growth scenarios in response to joining the EU for the period 1850-2015. By matching the EU member states’ growth and development dynamics with a balanced sample of non-EU countries prior to the admission, we obtain a plausible representation of the economic growth trajectory in the hypothetical absence of EU membership. Our results suggest that the EU institutional design has disproportionately benefited the economic growth of the founding member states and several additional countries such as Ireland, Poland and Czech Republic where large gains from joining the EU are perceivable. Elsewhere we detect a pattern of no effect or a weak temporary effect of EU membership that disappears in the long run. Based on a large battery of empirical distributions of the pseudo t-statistics, we show large differences in the significance of the estimated growth premium of joining the EU across the member states.

Keywords: European Union, Economic Growth, Long-Run Development, Institutional Change

JEL Classification: C55, N10, O10, O47, O52