Complex Europe: Quantifying the cost of disintegration

Gabriel Felbermayr, Jasmin Gröschl and Inga Heiland
Authors registered in the RePEc Author Service: Jasmin Groeschl

Journal of International Economics, 2022, vol. 138, issue C

Abstract: We propose novel estimates of the economic consequences of undoing European goods and services markets integration. Using a quantitative multi-country, multi-sector trade model, we disentangle two important layers of complexity: First, European integration is governed by various, partly overlapping arrangements — the Customs Union, the Single Market, the Common Currency, the Schengen Area, free trade agreements — and fiscal transfers, all of which affect production, trade, and income differently. Second, decades of integration have led to dense cross-border input–output (IO) networks, which endogenously adjust to trade cost shocks. Based on our preferred gravity estimates, we find disintegration to trigger statistically significant welfare losses of up to 23%. In a conservative specification, effects are about half the size. Robustly, the Single Market dominates quantitatively, but the losses from dissolving the Schengen Area are substantial, too. Compared to a model variant without IO linkages, our complex model predicts significantly larger aggregate losses.

Keywords: Structural gravity; European trade integration; General equilibrium; Quantitative trade models (search for similar items in EconPapers)
JEL-codes: F13 F14 F17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Complex Europe: Quantifying Cost of Disintegration (2023)
Working Paper: Complex Europe: Quantifying the Cost of Disintegration (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:138:y:2022:i:c:s0022199622000794

DOI: 10.1016/j.jinteco.2022.103647

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