DP15982 The United States of Europe: A gravity model evaluation of the four freedoms

Author(s): Keith Head, Thierry Mayer
Publication Date: March 2021
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Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15982

One of the pillars of the 1957 Treaty of Rome that ultimately led to the European Union is the commitment to the four freedoms of movement (goods, services, persons, and capital). Over the following decades, as the members expanded in numbers, they also sought to deepen the integration between themselves in all four dimensions. This paper estimates the success of these policies based primarily on a gravity framework. Distinct from past evaluations, we augment the traditional equation for international flows with the corresponding intra-national flows, permitting us to distinguish welfare-improving reductions in frictions from Fortress Europe effects. We complement the gravity approach by measuring the extent of price convergence. We compare both quantity and price assessments of free movement with corresponding estimates for the 50 American states.