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Complex Europe: Quantifying the Cost of Disintegration

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  • Heiland, Inga
  • Felbermayr, Gabriel
  • Gröschl, Jasmin

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.

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  • Heiland, Inga & Felbermayr, Gabriel & Gröschl, Jasmin, 2020. "Complex Europe: Quantifying the Cost of Disintegration," CEPR Discussion Papers 15200, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15200
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    Cited by:

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    3. Kerényi, Ádám & Gulácsi, Gábor, 2023. "Magyarország elfordulása az Európai Unió derékhadától és az Unió válaszai [Hungarys turning away for the European Union and the EUs response]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1131-1172.
    4. Sonali Chowdhry & Julian Hinz & Katrin Kamin, 2022. "Brothers in arms: The value of coalitions in sanctions regimes," RSCAS Working Papers 2022/62, European University Institute.
    5. Felbermayr, Gabriel & Gröschl, Jasmin & Heiland, Inga, 2022. "Complex Europe: Quantifying the cost of disintegration," Journal of International Economics, Elsevier, vol. 138(C).
    6. repec:wsr:wpaper:y:2022:i:196 is not listed on IDEAS
    7. Flach, Lisandra & Heiland, Inga & Larch, Mario & Steininger, Marina & Teti, Feodora A., 2023. "Quantifying the partial and general equilibrium effects of sanctions on Russia," Open Access Publications from Kiel Institute for the World Economy 302103, Kiel Institute for the World Economy (IfW Kiel).
    8. Ricardo Hausmann & Ulrich Schetter & Muhammed A Yildirim, 2024. "On the design of effective sanctions: the case of bans on exports to Russia," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 39(117), pages 109-153.
    9. de Lucio, Juan & Mínguez, Raúl & Minondo, Asier & Requena, Francisco, 2024. "The negative impact of disintegration on trade: The case of Brexit," European Economic Review, Elsevier, vol. 163(C).
    10. Felbermayr, Gabriel & Krebs, Oliver, 2023. "Der volkswirtschaftliche Schaden von Decoupling in Deutschland: Szenarien auf Bundes-, Kreis- und Sektorebene," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 273175.
    11. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2021. "Decoupling Global Value Chains," CESifo Working Paper Series 9079, CESifo.
    12. Ricardo Hausmann & Ulrich Schetter & Muhammed A Yildirim, 2024. "On the design of effective sanctions: the case of bans on exports to Russia," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 39(117), pages 109-153.
    13. Gulácsi, Gábor & Kerényi, Ádám, 2024. "A magyar gazdaság felzárkózása és pozíció vesztése az Európai Unióban [The Hungarian economy's convergence and losing postion in the European Union]," MPRA Paper 121131, University Library of Munich, Germany.
    14. Joseph Kopecky, 2024. "A Match Made in Maastricht: Estimating The Treatment Effect of the Euro On Trade," Open Economies Review, Springer, vol. 35(1), pages 159-187, February.
    15. repec:wsr:ecbook:2022:i:viii-003 is not listed on IDEAS
    16. Borin, Alessandro & Conteduca, Francesco Paolo & Di Stefano, Enrica & Gunnella, Vanessa & Mancini, Michele & Panon, Ludovic, 2023. "Trade decoupling from Russia," International Economics, Elsevier, vol. 175(C), pages 25-44.
    17. Heid, Benedikt & Stähler, Frank, 2024. "Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market," Economic Modelling, Elsevier, vol. 131(C).
    18. Pasimeni Paolo, 2024. "Twenty Years After the Big Enlargement: Integration Within the Single Market," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(4), pages 222-230.

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    More about this item

    Keywords

    Structural gravity; European trade integration; General equilibrium; Quantitative trade models;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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