ARE EU COUNTRIES LESS INTEGRATED THAN U.S. STATES? THEORY AND EVIDENCE

Authors


  • We thank journal co-editor Marlon Boarnet and two anonymous referees for guidance and insightful comments. We further thank seminar participants at University of Michigan, European Commission, Tinbergen Institute, Midwest International Economics Meeting (Michigan), CESifo Conference on the Global Economy (Munich), and Department of Managerial Economics, Strategy and Innovation at Catholic University Leuven (Belgium) for helpful comments and suggestions. We also thank Olga Zelenko for valuable research assistance.

Abstract

ABSTRACT A belief that EU integration is incomplete is often predicated on a comparison to U.S. states. Yet, with low barriers to trade and factor mobility between EU countries, is this belief correct? To address this question, we develop three theoretical predictions regarding the distribution of output and factors across members of an integrated economic area with harmonized policies and free movement of goods and factors. Empirical tests strongly support these predictions for U.S. states and 14 EU countries. Constructing a measure of integration, we find that EU integration rose from the 1960s to equal that of U.S. states by 2000.

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