What does European institutional integration tell us about trade integration?

Francesco Paolo Mongelli (), Ettore Dorrucci () and Itai Agur ()
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Ettore Dorrucci: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 40, Occasional Paper Series from European Central Bank

Abstract: The start of the European Economic and Monetary Union (EMU) has spurred a new interest in the debate on the effects of monetary unions on regional economic integration. This literature either investigates past episodes of monetary unions or attempts to gauge any effect with a few years of EMU data. This paper takes instead a more general perspective - it investigates the link between economic integration and the overall institutional process of regional integration in Europe – of which monetary integration was only one step – over the last 50 years. We look mainly at two dimensions - European institutional integration – whose main steps were the customs union in 1968, the single market in 1993 and the single currency in 1999 – and intra-European trade. We pay special attention to the successive EU enlargements which took place in 1973, 1981, 1986, and 1995. Different facets of openness and trade linkages are presented. After looking at some descriptive links between institutional and trade integration, the paper uses some causality tests to assess the direction of causality and magnitude of impact. The evidence provided is consistent with the idea that the interaction between regional institutional and trade integration before monetary union matters. Such interaction runs in both directions, although the link from institutional to trade integration dominates. Many open questions remain, however.

Keywords: Optimum Currency Area; Economic and Monetary Integration and EMU. (search for similar items in EconPapers)
JEL-codes: E42 F15 F33 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-int
Date: 2005-12
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