Skip to main content

EU Accession and Income Growth: An Empirical Approach


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 27%. EU membership may contribute to trade by inducing countries to improve the quality of their institutions. Trade increases by another 23% if institutions improve, yielding a total trade increase of 50%. Improved openness increases income by 38% according to our estimates. Adding a small direct effect of improved institutions on income, the total income effect of EU membership is 40% for the 12 new members and Turkey. 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.

This is a preview of subscription content, access via your institution.


  1. 1.

    Exports are expressed as a share of GDP in the origin country. One could thus transfer log GDP in the origin country from the left to the right handside of Eq. 1. Then the values of coefficients for both GDP’s are nearly identical.

  2. 2.

    Baldwin et al. (1997) as well as Brenton and Gros (1997) find an increase in bilateral trade between EU members of about 30%. Later studies find larger effects. Fidrmuc and Fidrmuc (2003) report a 40% increase in bilateral trade, and Lejour et al. (2004) a 50% increase.

  3. 3.

    Since membership of the APEC and the OECD overlaps considerably, the two dummies are introduced separately into the equation.

  4. 4.

    Good surveys are Dollar (1992), Edwards (1993) and Srinivasan and Wallack (2004).

  5. 5.

    For an average value for openness of 69.1%.

  6. 6.

    As a measure of institutional quality we use the Heritage total score which comprises a number of indicators of institutional climate for the period 1995–2003. For our purposes we average the data over the available time span; in other words we assume that institutions will not change over time. The index takes values from one to five, with higher marks indicating worse institutions.

  7. 7.

    The coefficients for the high income countries are generally lower than for other country groups (with an exception of lower-middle income countries.

  8. 8.

    These results are available upon request by the authors.

  9. 9.

    There is one caveat in these calculations. The GDP increase is based on GDP level measured in constant prices. The comparison of income per capita in PPP terms measures GDP in ppp prices. Probably prices will converge somewhat to the average EU price level if GDP increases. This will reduce the relative increase in income per capita somewhat.


  1. Acemoglu D, Johnson S, Robinson JA (2001) The colonial origins of comparative development: an empirical investigation. Am Econ Rev 91(5):1369–1401

    Google Scholar 

  2. Alesina A, Spolaore E, Wacziarg R (2003) Trade, growth and the size of countries. Harvard Institute of Economic Research, Discussion Paper No. 1995

  3. Anderson JE (1979) A theoretical foundation for the gravity equation. Am Econ Rev 69(1):106–116

    Google Scholar 

  4. Badinger H (2005) Growth effects of economic integration: evidence from the EU Member States (1950–2000). Rev World Econ 141(1):50–78

    Article  Google Scholar 

  5. Baldwin RE, Francois JF, Portes R (1997) The costs and benefits of Eastern enlargement: the Impact on the EU and Central Europe. Econ Policy 24:125–170

    Article  Google Scholar 

  6. Bergstrand JH (1985) The gravity equation in international trade: some microeconomic foundations and empirical evidence. Rev Econ Stat 67(3):474–481

    Article  Google Scholar 

  7. Bloom DE, Sachs JR (1998) Geography, demography, and economic growth in Africa. Brooking Pap Econ Act 2:207–273

    Article  Google Scholar 

  8. Brenton P, Gros D (1997) Trade reorientation and recovery in transition economies. Oxford Rev Econ Policy 13:65–76

    Article  Google Scholar 

  9. Breuss F (2001) Macroeconomic effects of EU enlargement for old and new members. WIFO Working Papers Series No. 143

  10. Coe DT, Helpman E (1995) International R&D spillovers. Eur Econ Rev 39(5):859–887

    Article  Google Scholar 

  11. Crafts N, Kaiser K (2004) Long-term growth prospects in transition economies: a reappraisal. Struct Change Econ Dyn 15:101–118

    Article  Google Scholar 

  12. Crespo-Cuaresma J, Dimitz MA, Ritzberger-Grünwald D (2002) Growth, convergence and EU membership. Working Paper Series of the Österreichische Nationalbank No. 62

  13. de Groot HLF, Linders G-J, Rietveld P, Subramanian U (2004) The institutional determinants of bilateral trade patterns. Kyklos 57:103–123

    Article  Google Scholar 

  14. de Melo J, Panagariya A, Rodrik D (1992) The new regionalism: a country perspective. CEPR Discussion Paper Series No. 715

  15. Diamond J (1997) Guns, germs, and steel: the fates of human societies. W.W. Norton, New York

    Google Scholar 

  16. Dollar D (1992) Outward-oriented developing economies really do grow more rapidly: evidence from 95 LDCs: 1976–1985. Econ Dev Cult Change 40:523–544

    Article  Google Scholar 

  17. Easterly W (2001) The elusive quest for growth: economists’ adventures and misadventures in the tropics. MIT Press, Cambridge

    Google Scholar 

  18. Easterly W, Levine R (2003) Tropics, germs, and crops: how endowments influence economic development. J Monet Econ 50:3–39

    Article  Google Scholar 

  19. Edwards S (1993) Openness, trade liberalization and growth in developing countries. J Econ Lit 31(3):1358–1393

    Google Scholar 

  20. Edwards S (1998) Openness, productivity and growth: what do we really know? Econ J 108:383–398

    Article  Google Scholar 

  21. Fidrmuc J, Fidrmuc J (2003) Disintegration and trade. Rev Int Econ 11:811–830

    Article  Google Scholar 

  22. Frankel JA, Romer D (1999) Does trade cause growth. Am Econ Rev 89(3):379–399

    Google Scholar 

  23. Frankel J, Rose A (2002) An estimate of the effect of common currencies on trade and income. Q J Econ 117:437–466

    Article  Google Scholar 

  24. Griffith R, Redding S, Van Reenen J (2000) Mapping the two faces of R&D: productivity growth in a panel of OECD industries. CEPR Discussion Paper 2457, London

  25. Hall RE, Jones LC (1999) Why do some countries produce so much more output per worker than others. Q J Econ 114(1):83–116

    Article  Google Scholar 

  26. Henrekson M, Torstensson J, Torstensson R (1997) Growth effects of European integration. Eur Econ Rev 41(8):1537–1557

    Article  Google Scholar 

  27. Irwin DA, Terviö M (2000) Does trade raise income? Evidence from the twentieth century. NBER Working Paper Series No. 7745

  28. Islam N (1995) Growth empirics: a panel data approach. Q J Econ 110(4):1127–1170

    Article  Google Scholar 

  29. Jansen M, Nordas HK (2004) Institutions, trade policy and trade flows. CEPR Discussion Paper 4418, London

  30. Kaufmann D, Kraay A (2003) Governance matters III: governance indicators for 1996–2002. World Bank Policy Research Department Working Paper

  31. Knack S, Keefer P (1995) Institutions and economic performance: cross-country tests using alternative measures. Econ Polit 7(3):207–227

    Article  Google Scholar 

  32. Koukhartchouk O, Maurel M (2003) Accession to the WTO and EU enlargement: what potential for trade increase. CEPR Discussion Paper Series No. 3944

  33. Lejour AM, de Mooij R, Nahuis R (2004) EU enlargement: implication for countries and industries. In: Berger H, Moutos T (eds) Managing EU enlargement. MIT Press, Cambridge, pp 217–255

  34. Lejour, AM, Solanic V, Tang PJG (2006) EU accession and income growth: an empirical approach. CPB Discussion Paper 72, The Hague

  35. Mankiw GN, Romer D, Weil D (1992) A contribution to the empirics of economic growth. Q J Econ 107:407–437

    Article  Google Scholar 

  36. Rodríguez F, Rodrik D (2000) Trade policy and economic growth: a skeptic’s guide to the cross-national evidence. In: Bernanke BS, Rogoff K (eds) NBER Macroeconomics Annual 2000. MIT Press, Cambridge, pp 261–338

    Google Scholar 

  37. Rodrik D, Subramanian A (2003) The primacy of institutions (and what this does and does not mean). Finance Dev 40:31–34

    Google Scholar 

  38. Rose AK (2004) Do we really know that the WTO increases trade? Am Econ Rev 94:98–114

    Article  Google Scholar 

  39. Sachs J (2001) Tropical Underdevelopment. NBER Working Paper Series No. 8119

  40. Srinivasan TN, Wallack JS (2004) Globalization, growth and the poor. Economist 1522:251–272

    Article  Google Scholar 

  41. Tinbergen J (1962) Shaping the world economy—suggestions for an international economic policy, The Twentieth Century Fund

  42. Vanhoudt P (1998) Did the European unification induce economic growth? In search of scale-effects and persistent changes. SSE/EFI Working Paper Series No. 270

  43. World Bank (2003) World development indicators, Washington

Download references

Author information



Corresponding author

Correspondence to Arjan M. Lejour.

About this article

Cite this article

Lejour, A.M., Solanic, V. & Tang, P.J.G. EU Accession and Income Growth: An Empirical Approach. Transit Stud Rev 16, 127–144 (2009).

Download citation


  • Income and openness
  • EU accession
  • Gravity equation
  • Bilateral trade

JEL Classification

  • F15
  • F43