Geographies in Depth

Is there a link between EU membership and economic growth?

The Union Jack and the European Union flags hang at the European Commission headquarters in Brussels, Belgium February 7, 2019. REUTERS/Yves Herman - RC1AA43750F0

The bright-side of Brexit? Image: REUTERS/Yves Herman

Pieter Vanhuysse
Professor of Politics and Public Policy, Department of Politics and Danish Institute for Advanced Study, University of Southern Denmark
Thomas Barnebeck Andersen
Professor of Economics, , University of Southern Denmark
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From Winston Churchill in the 1940s to the Nobel Peace Prize Committee in our era, peace and prosperity have always been put forward as the two main goals of European integration. The EU founding fathers saw the European project as a way of taming nationalist passions by serving mutual commercial interests: a common political and economic entity that would guarantee both peace and economic progress.

In his famous United States of Europe speech in Zürich on September 19, 1946, Churchill argued that “the sovereign remedy” to the plight of post-war Europe was “to recreate the European family, or as much of it as we can, and to provide it with a structure under which it can dwell in peace, in safety, and in freedom”.

 Founding father Robert Schuman.
Founding father Robert Schuman. Image: Wikimedia

Four years later, on May 9, 1950, the epochal declaration by then French foreign minister Robert Schuman stated that pooling the coal and steel production of West Germany, France, Italy, the Netherlands, Luxembourg and Belgium had the double aim of “contributing to raising living standards and to promoting peaceful achievements”. When the Treaty of Rome was established in 1957, Article 2 explicitly talked about “raising the standard of living”. Fast forward 70 years and the official website of the European Union proclaims that the “EU has delivered half a century of peace, stability and prosperity”.

Growth continues to be prominent in the EU’s general objectives today, of course. A stated aim of the influential Lisbon 2000 Agenda was to make the European economy the “most competitive and knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. All seven of the Flagship Initiatives adopted as part of the Europe 2020 Strategy were also about growth – smart growth, sustainable growth, and inclusive growth.

But is this correct? In new research forthcoming in the economics journal Kyklos, which we co-authored with Mikkel Barslund from the Centre for European Policy Studies in Brussels, we looked at whether joining the EU has actually increased domestic economic growth for EU member states on average over the past few decades. In a nutshell, most probably it has not.

The elusive growth premium

To cut a long methodological story short, we sought to answer our question using different empirical strategies, different time periods from the 1960s to 2015, different country samples and different datasets. We compared the growth of the EU to the US and to comparably wealthy OECD countries outside the EU. We compared the growth of former Soviet satellites inside and outside the EU, and also looked at growth in different countries within the EU. At the end of the day, we were unable to demonstrate the presence of a clear-cut membership growth premium: the EU bloc performed roughly comparably to countries on the outside, and in certain cases worse.

It could be that EU membership is more economically beneficial than it seems. GDP is a poor measure of the economic effect of certain new phenomena like Facebook, for example, as well as smartphones. Equally it could be that cause and effect are just too complicated for EU economic benefits to be properly captured in the data. If either of these are true, however, it doesn’t mean our conclusion is wrong – only that we should remain agnostic about the EU’s growth impact.

Whichever way one chooses to interpret our results, our inability to find a significant positive economic benefit from EU membership runs contrary to many official reports arriving at the opposite inference. The OECD’s Brexit report, for example, claims that the EU has contributed in no small measure to British prosperity. The Danish government recently commissioned a study which found that EU membership had made Danes much richer. And the Netherlands Bureau for Economic Policy Analysis, an independent part of the Dutch Ministry of Economic Affairs, has found that EU membership had made the Dutch much richer.

Since we focused on the EU average rather than on individual country performances, we are not necessarily disagreeing with any one of these individual country studies. But for every country that has done better than average, there must be another which has done worse, so we certainly question the bigger picture. It suggests that taking a confidently positive position about the growth effects of EU membership is at the very least inappropriate.

This is consistent with the latest thinking within economic policy research on growth strategy. This would say that the EU can create a level playing field in terms of regulation, but does not provide any off-the-shelf blueprint when it comes to growth policies. Policies to address country-specific constraints on growth must be tailored to local context, and so only national governments can implement them.

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The upside

So there are no straightforward messages as regards Brexit here: we are not looking at the UK on its own, and in any case, the effects of leaving need not be symmetrical to those of joining. Evaluating the EU’s growth contribution also does not amount to an evaluation of the entire EU project. The EU provides many direct benefits to the citizens of Europe – or costs, depending on your perspective. The right to study, work, travel and live in any EU country is a right that many Europeans value highly, even if others do not.

The EU has contributed to, among other things, consumer protection, workplace safety, regional convergence and constitutional rights protection. By focusing exclusively on economic growth, we obviously leave all these things out of the picture. But none of this detracts from the fact that a key component of the whole EU rationale and its ongoing accomplishments is far from clear-cut. If the EU does not in fact deliver prosperity, it could profoundly affect the future of the project.

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Geographies in DepthEconomic Growth
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