DP1393 Growth and European Integration: Towards an Empirical Assessment

Author(s): Richard Baldwin, Elena Seghezza
Publication Date: May 1996
Keyword(s): European Integration, Growth and Trade, Trade-induced Investment-led Growth
JEL(s): F10, F15, O4
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1393

Broadly speaking, European integration affects growth by stimulating the accumulation of physical capital and/or knowledge capital (i.e. technology). This paper surveys existing empirical work on integration and growth concluding that there is strong evidence that trade liberalization promotes growth by boosting investment in physical capital. Because European integration has substantially liberalized European trade, we conclude that it has promoted European growth. We find much less econometric support for trade-induced technology-led growth. Nonetheless cross-country data reveals a rough correlation between the national total factor productivity growth rates and the degree (and duration) of European integration. Our exploratory regressions into this phenomenon prove inconclusive, but we suggest several directions for future research.