1) This document analyzes the economic benefits of EU membership using a synthetic counterfactual method to estimate growth effects. 2) It finds generally positive effects of EU membership on growth and productivity, though there is heterogeneity across countries and enlargements. Countries joining in 1973 and 2004 saw larger effects than those joining in 1995 or 1980s (except Greece saw negative effects). 3) Institutional development and structural reforms were found to be crucial for countries to fully realize the growth benefits of EU membership. Economic integration and trade liberalization alone were not sufficient.

1. The power and limits of integration:
Growth Effects of EU Membership
Fabrizio Coricelli 1
1Paris School of Economics and CEPR
Paris, OECD May 20, 2014

2. Outline
Motivation
Measuring the economic benefits of EU membership
Synthetic counterfactual method
Contribution of our paper
Main results
Economic integration and liberalization not enough

3. Motivation
I As economic integration deepened political integration
lagged behing
I Alesina et al (AER 2000) argued that deeper economic
integration may induce political disintegration (see also
Brou and Ruta (JEEA 2011))
I Enjoying the benefits of economic integration, countries
have little incentives to move on political integration, which
requires both income redistribution and abandoning
national sovereignity
I The Great Recession and the euro-debt crisis made even
more dramatic the tension between economic and political
integration, putting under stress the sustainability of the
European project
I Economic benefits of the EU and the euro are increasingly
questioned

4. Motivation 2
I EU integration unique experience: Four major
enlargements (from 1970s to 2000s) taking place at
I Sharply different outside context in terms of "globalization",
trade integration at the world level (1970s vs 1990s and
2000s)
I This may help understanding benefits from integration
under different global conditions
I Very different levels of incomes per capita of new entrants
relative to incumbents
I Radically different context of financial integration
(liberalization of capital account)

5. Measuring the economic benefits of EU membership
I In such a context, measuring the benefits of EU entry is
crucial
I Are the countries that joined the European Integration
project better-off?
I How much do countries actually benefit from membership
in the European Union (EU)?
I EU membership estimates: few and widespread
I Range of estimates (Eichengreen to Badinger): w/o
integration, per capita incomes would be 2-20 per cent
lower, though estimates often “not completely robust”

6. Hard to measure the benefits: Need a good
counterfactual
I Our research question:
I What would have been the levels of per capita income (and
productivity) if a given country had not become a
full-fledged member of the EU?
I Answer based on Synthetic control methods for causal
inference in comparative case studies or “synthetic
counterfactuals” (SCM), Abadie et al: AER 2003, JASA
2009, AJPS 2014
I SCM estimates the effect of a given intervention by
comparing the evolution of an aggregate outcome variable
for a country “treated” to its evolution for a synthetic control
group

7. Synthetic counterfactual method
I SCM minimizes the pre-treatment distance (mean squared
error of pre-treatment outcomes) between the vector of
treated country’s characteristics and the vector of potential
synthetic control characteristics
I Specify: (1) treatment, (2) set of matching covariates, and
(3) “donor pool”
I Advantages:
I It allows the study of the dynamic effects, not just average
pre and post treatment
I It is designed for case-study, so we can analyze individual
country experiences

8. Contribution of our paper
I Campos, Coricelli and Moretti (2014)
I We apply Synthetic counterfactuals method to estimate
growth and productivity payoffs of EU membership
I Our "treatment" entry in the EU
I Analyze all enlargements: 1973, 1980s, 1995, 2004

9. Specification
I Year treatment starts (EU membership): 1973: IRL, DK,
UK; 1980s: Greece, SP, Port; 1995: Austria, Fin, Sweden;
2004: Poland CZ etc
I Matching over which covariates? Follow Abadie et al 2003:
investment, labour, agriculture in GDP, level of secondary
and tertiary education, initial GDP pc
I Donor pool: Used various pools ranging from whole world
to neighbours, report upper middle income sample (from
Bover and Turrini, 2010)

11. Example of bad outcome
Greece: EU entry

12. The magnitude of the effects: Actual-counterfactual

13. Summary of the main findings
I Positive effects from EU membership on growth and
productivity, heterogeneity across countries
I Large effects for 1973 and 2004, modest for 1995 and
mixed for 1980s
I Mixed 1980s: negative for Greece
I Magnitude of average effect: 12 percent

14. Preliminay explanations
I Given so similar “income gaps at entry,” why are 1973 and
1995 payoffs so different? Role of institutions and
institutional development
I Why are EU membership benefits for Greece relatively
low? Structural reforms avoidance
I What helps to explain post accession payoffs? Trade
integration and financial liberalization, but also structural
reforms and institutional development

15. Economic integration and liberalization not enough
I Institutional developments and structural reforms seem
crucial to exploit growth benefits of membership
I Trade integration powerful but not sufficient
I Financial sector development and financial integration very
relevant and they are more "institution intensive" than trade
liberalization (rule of law, contract enforcement)
I The recent crisis may have negative effects in this regard

16. Expalining the gap: A regression analysis

17. European Integration Today
I Now to understand European Integration focus has to shift
from trade, agriculture and EU norms to:
I There are potentially large positive effect from EU
membership, well beyond trade integration: Need to better
understand them (case studies of Italy and possibly Italy
today would be very instructive)
I Political economy: political disintegration and North-South
divide
I Need to emphasize more coordinated, common policies,
including macro policies with immediate effects in this crisis
period
I Economic growth: again, North can prosper while the South
struggles (the Italian Mezzogirono a possibly relevant
parallel)
I Financial development: True banking union may play a key
role

18. References
I Alesina, Spolaore and Wacziarg (American Economic
Review, 2000), “Economic Integration and Political
Disintegration”
I Brou and Ruta (Journal of European Economic
Association 2011), “Economic Integration, Political
Integration, or Both?”
I Campos, Coricelli and Moretti (CEPR Discussion Paper
2014), "Economic Growth and Political Integration:
Estimating the Benefits from Membership in the European
Union Using the Synthetic Counterfactuals Methods"