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EU accession and income growth: an empirical approach

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Author Info
Arjan Lejour ()
Vladimir Solanic
Paul Tang

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Abstract

The dynamic effects from EU membership are crucial for the new member states to catch up with the average income level in the old member states. To gauge the dynamic effects, we follow a two-step procedure in which a gravity equation for bilateral trade shows the trade effect of EU membership and a growth regression yields the income effect of trade. Shared EU membership is found to increase trade between two of its member states with about 34%. EU membership may contribute to trade by inducing countries to improve the quality of their institutions. Trade increases by another 22% if institutions improve, yielding a total trade increase of 56%. Improved openness increases income by 37.5% according to our estimates. Adding a small direct effect of improved institutions on income, the total income effect of EU membership is 39% for the ten new members. This implies that EU membership, or its effect on trade and institutions, could lead to large economic gains for the new member states, but does not bring them economically on par with the old member states.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers with number 72.

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Date of creation: Oct 2006
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Handle: RePEc:cpb:discus:72

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Related research
Keywords: income and openness; EU accession; gravity equation;

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arjan Lejour & Andrea Mervar & Gerard Verweij, 2007. "The economic effects of Croatia's accession to the EU," CPB Documents 154, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
    Other versions:
  2. Bas Straathof & Gert-Jan Linders & Arjan Lejour & Jan Möhlmann, 2008. "The Internal Market and the Dutch Economy," CPB Documents 168, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Arjan Lejour & Vladimir Solanic & Paul Tang, 2009. "EU Accession and Income Growth: An Empirical Approach," Transition Studies Review, Springer, vol. 16(1), pages 127-144, May. [Downloadable!] (restricted)
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  4. Andreas Billmeier & Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources?," IMF Working Papers 07/157, International Monetary Fund. [Downloadable!]
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