Complex Europe: Quantifying the Cost of Disintegration

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

No 15200, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose novel estimates of the economic consequences of undoing European Integration. Using a quantitative general equilibrium trade model for 43 countries and 50 goods and services sectors, we disentangle and decompose two important layers of complexity: First, European integration is governed by various, partly overlapping arrangements – the customs union, the single market, the common currency union, the Schengen Area, free trade agreements – and fiscal transfers, all of which affect trade costs, terms-of-trade, and gains from trade differently. Second, more than any other geography, decades of integration have led to dense cross-border input-output (IO) networks, which would endogenously readjust. We find disintegration to trigger statistically significant welfare losses of up to 21% of the 2014 baseline, but with a strong degree of heterogeneity across EU insiders. The welfare effects from undoing the Single Market dominate quantitatively, but the losses from dissolving the Schengen area or the Eurozone are substantial for many countries as well. Compared to a model variant without IO-linkages, the more complex model predicts statistically significant smaller losses from disintegration in the manufacturing sector but larger aggregate ones, a lesson that may carry over to other integration agreements.

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: 2020-08
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Complex Europe: Quantifying Cost of Disintegration (2023)
Journal Article: Complex Europe: Quantifying the cost of disintegration (2022)
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