The EU Miracle: When 75 Million Reach High Income

Basile Grassi

No 19114, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In 2004, 75 million people across 10 countries joined the European Union (EU). Over the subsequent 15 years, their GDP per capita had increased by 90\%. Using a synthetic control method, I show that half of this increase is attributed to the EU accession. I found that without joining the EU, the GDP per capita of the new members would have been 8,433~USD or 24\% lower in 2019. The same methodology does not identify a robust effect on the 15 countries that were already members of the EU before 2004. These findings are robust to various tests and specifications: a leave-one-out test, an in-country placebo, an in-time placebo, and alternative donor pools. A simple growth accounting decomposition shows that the contribution of the Solow residual to growth of the new member countries is three times larger. The data shows convergence in investment, consumption, government spending, export/import shares, employment rate, FDI, and regulations indices. The TFP of the new member states has been growing at a higher rate since 2004. These results raise the question of why accession to the EU had such a large impact on TFP.

Date: 2024-05
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