Measuring EU and EMU membership: Are there heterogenous effects on growth and trade?

Scholars have been investigating the benefits of EU and EMU membership employing a variety of explanatory variables and models. Yet, mixed empirical results require further investigation. To what extent has European Union (EU) and European Monetary Union (EMU) membership improved the economic performance of the member states? Building on classic currency union and trade theory, I examine the potential benefits of belonging to a political, economic and monetary union or to a political and economic union – the EMU and EU, respectively – compared to non-membership. While many of the political benefits that derive from greater unity such as influence and stability are difficult to quantify, this study measures more tangible advantages in the form of trade and growth. Using the non-parametric synthetic control method, which lies at the intersection of comparative case analysis and quantitative estimation techniques, I estimate a reliable counterfactual scenario for each member state, addressing some of the limitations of traditional regression models. I employ data from 1980 to 2018 for all EU member states from the World Bank Development Indicators for trade, GDP per-capita and the control variables. The donor pool is composed by countries that do not belong to the EU or EFTA. How would trade and GDP have developed for each member state without membership? The results show that while the EU and EMU overall enhance trade, the effects on GDP per-capita are not so clear and on average worse for EMU countries. Thus, while political and economic integration appears to generally increase GDP and trade, the additional monetary integration does not seem to significantly improve the economic situation of most involved country, suggesting a stronger political motivation behind the EMU or the need for fiscal integration.