Shocking times for European economic integration

Over time, European economic integration has become ever more comprehensive and complex, with a growing body of common legislation that is not easily translated into economic metrics.

This project will evaluate and test empirically state of the art scientific approaches to measuring the scale and scope of economic integration, with the aim of improving empirical methods. European integration has recently been hit by various shocks such as Brexit, Trump’s trade wars, the COVID-19 pandemic, and the competition from China. We will exploit these shocks to generate new knowledge and identify the impact of economic integration on trade and investment in goods and services; e.g. Brexit is a natural experiment of (partial) disintegration that generates important new evidence. In the project, the trade impact of integration will be analysed with state-of-the-art empirical methods, supported by numerical models that shed light on the uneven impact of integration across countries and regions.

While previous research on economic integration has largely focused on trade in goods, services and international investment will feature prominently in the project. We will use “microdata” at the firm level for selected countries to shed light on the interplay between trade and investment, and how this has been affected by integration. This is particularly important for services, that has become much more important over time and where a substantial share of exports is via affiliates abroad rather than cross-border trade. Services are essential inputs in value chains, and we will examine how EU legislation as well as recent shocks affect such value chains.

The project runs from October 2021 through 2024 and is a newly established cooperation in the field between NUPI, Kiel Institute for the World Economy, University of Groningen and LSE (London School of Economics and Political Science).