Abstract
We propose novel estimates of the economic consequences of undoing European goods and services markets integration. Using a quantitative multi-country, multi-sector trade model, we disentangle two important layers of complexity: First, European integration is governed by various, partly overlapping arrangements — the Customs Union, the Single Market, the Common Currency, the Schengen Area, free trade agreements — and fiscal transfers, all of which affect production, trade, and income differently. Second, decades of integration have led to dense cross-border input–output (IO) networks, which endogenously adjust to trade cost shocks. Based on our preferred gravity estimates, we find disintegration to trigger statistically significant welfare losses of up to 23%. In a conservative specification, effects are about half the size. Robustly, the Single Market dominates quantitatively, but the losses from dissolving the Schengen Area are substantial, too. Compared to a model variant without IO linkages, our complex model predicts significantly larger aggregate losses.
| Originalsprache | Englisch |
|---|---|
| Aufsatznummer | 103647 |
| Fachzeitschrift | Journal of International Economics |
| Jahrgang | 138 |
| DOIs | |
| Publikationsstatus | Veröffentlicht - Sept. 2022 |
Bibliographische Notiz
Funding Information:We thank two anonymous referees, Ralph Ossa, Peter Egger, Yoto Yotov and Benny Jung for discussion and comments, and participants at the 6th Lindau Nobel Laureate Meeting in Lindau, the Meeting of the European Economic Association in Cologne, the Meeting of the German Economic Association in Vienna, ETSG in Florence, CESifo Venice Workshop on Country Clubs, IIASA Laxenburg, University of Göttingen, Czech National Bank, KU Leuven and ETH Zurich for useful comments and suggestions. All remaining errors are our own. Jasmin Gröschl gratefully acknowledges funding from the German Science Foundation (DFG) under project GR4896/1-1. Inga Heiland gratefully acknowledges funding from the European Research Council under the European Union's Horizon 2020 research and innovation program (grant agreement 715147).
Funding Information:
We thank two anonymous referees, Ralph Ossa, Peter Egger, Yoto Yotov and Benny Jung for discussion and comments, and participants at the 6th Lindau Nobel Laureate Meeting in Lindau, the Meeting of the European Economic Association in Cologne, the Meeting of the German Economic Association in Vienna, ETSG in Florence, CESifo Venice Workshop on Country Clubs, IIASA Laxenburg, University of Göttingen, Czech National Bank, KU Leuven and ETH Zurich for useful comments and suggestions. All remaining errors are our own. Jasmin Gröschl gratefully acknowledges funding from the German Science Foundation ( DFG ) under project GR4896/1-1 . Inga Heiland gratefully acknowledges funding from the European Research Council under the European Union's Horizon 2020 research and innovation program (grant agreement 715147 ).
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