What could have been? A synthetic control evaluation of the effect of the Economic and Monetary Union on the net external wealth of periphery member states

João Alcobia, Nuno Sobreira and Ricardo Cabral

Economic Systems, 2025, vol. 49, issue 3

Abstract: This study investigates whether the Euro Area periphery member states would have been wealthier in 2010 had they not participated in the Economic and Monetary Union, as implied by the optimum currency area literature and the 1977 MacDougall report prepared for the European Commission. Using a synthetic control method, we found that by 2010, periphery member states' net international investment positions would show an improvement of, on weighted average, 41 % of GDP, which is equivalent to a combined 2.1 trillion of 2010 euros. The econometric results are robust to standard synthetic control method sensitivity tests. Finally, we discuss why the Economic and Monetary Union may have led to such a severe deterioration in the net external wealth position of the periphery member states.

Keywords: Optimum currency area; Fiscal transfers; Euro Area; Net International Investment Position; Synthetic control method (search for similar items in EconPapers)
JEL-codes: C01 E02 F15 F45 P16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:49:y:2025:i:3:s0939362525000056

DOI: 10.1016/j.ecosys.2025.101293

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