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.
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.
Since membership of the APEC and the OECD overlaps considerably, the two dummies are introduced separately into the equation.
For an average value for openness of 69.1%.
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.
The coefficients for the high income countries are generally lower than for other country groups (with an exception of lower-middle income countries.
These results are available upon request by the authors.
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.
Acemoglu D, Johnson S, Robinson JA (2001) The colonial origins of comparative development: an empirical investigation. Am Econ Rev 91(5):1369–1401
Alesina A, Spolaore E, Wacziarg R (2003) Trade, growth and the size of countries. Harvard Institute of Economic Research, Discussion Paper No. 1995
Anderson JE (1979) A theoretical foundation for the gravity equation. Am Econ Rev 69(1):106–116
Badinger H (2005) Growth effects of economic integration: evidence from the EU Member States (1950–2000). Rev World Econ 141(1):50–78
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
Bergstrand JH (1985) The gravity equation in international trade: some microeconomic foundations and empirical evidence. Rev Econ Stat 67(3):474–481
Bloom DE, Sachs JR (1998) Geography, demography, and economic growth in Africa. Brooking Pap Econ Act 2:207–273
Brenton P, Gros D (1997) Trade reorientation and recovery in transition economies. Oxford Rev Econ Policy 13:65–76
Breuss F (2001) Macroeconomic effects of EU enlargement for old and new members. WIFO Working Papers Series No. 143
Coe DT, Helpman E (1995) International R&D spillovers. Eur Econ Rev 39(5):859–887
Crafts N, Kaiser K (2004) Long-term growth prospects in transition economies: a reappraisal. Struct Change Econ Dyn 15:101–118
Crespo-Cuaresma J, Dimitz MA, Ritzberger-Grünwald D (2002) Growth, convergence and EU membership. Working Paper Series of the Österreichische Nationalbank No. 62
de Groot HLF, Linders G-J, Rietveld P, Subramanian U (2004) The institutional determinants of bilateral trade patterns. Kyklos 57:103–123
de Melo J, Panagariya A, Rodrik D (1992) The new regionalism: a country perspective. CEPR Discussion Paper Series No. 715
Diamond J (1997) Guns, germs, and steel: the fates of human societies. W.W. Norton, New York
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
Easterly W (2001) The elusive quest for growth: economists’ adventures and misadventures in the tropics. MIT Press, Cambridge
Easterly W, Levine R (2003) Tropics, germs, and crops: how endowments influence economic development. J Monet Econ 50:3–39
Edwards S (1993) Openness, trade liberalization and growth in developing countries. J Econ Lit 31(3):1358–1393
Edwards S (1998) Openness, productivity and growth: what do we really know? Econ J 108:383–398
Fidrmuc J, Fidrmuc J (2003) Disintegration and trade. Rev Int Econ 11:811–830
Frankel JA, Romer D (1999) Does trade cause growth. Am Econ Rev 89(3):379–399
Frankel J, Rose A (2002) An estimate of the effect of common currencies on trade and income. Q J Econ 117:437–466
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
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
Henrekson M, Torstensson J, Torstensson R (1997) Growth effects of European integration. Eur Econ Rev 41(8):1537–1557
Irwin DA, Terviö M (2000) Does trade raise income? Evidence from the twentieth century. NBER Working Paper Series No. 7745
Islam N (1995) Growth empirics: a panel data approach. Q J Econ 110(4):1127–1170
Jansen M, Nordas HK (2004) Institutions, trade policy and trade flows. CEPR Discussion Paper 4418, London
Kaufmann D, Kraay A (2003) Governance matters III: governance indicators for 1996–2002. World Bank Policy Research Department Working Paper
Knack S, Keefer P (1995) Institutions and economic performance: cross-country tests using alternative measures. Econ Polit 7(3):207–227
Koukhartchouk O, Maurel M (2003) Accession to the WTO and EU enlargement: what potential for trade increase. CEPR Discussion Paper Series No. 3944
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
Lejour, AM, Solanic V, Tang PJG (2006) EU accession and income growth: an empirical approach. CPB Discussion Paper 72, The Hague
Mankiw GN, Romer D, Weil D (1992) A contribution to the empirics of economic growth. Q J Econ 107:407–437
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
Rodrik D, Subramanian A (2003) The primacy of institutions (and what this does and does not mean). Finance Dev 40:31–34
Rose AK (2004) Do we really know that the WTO increases trade? Am Econ Rev 94:98–114
Sachs J (2001) Tropical Underdevelopment. NBER Working Paper Series No. 8119
Srinivasan TN, Wallack JS (2004) Globalization, growth and the poor. Economist 1522:251–272
Tinbergen J (1962) Shaping the world economy—suggestions for an international economic policy, The Twentieth Century Fund
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
World Bank (2003) World development indicators, Washington
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). https://doi.org/10.1007/s11300-009-0045-6
- Income and openness
- EU accession
- Gravity equation
- Bilateral trade