Presentation on theme: "European Integration and Economic Growth: A Counterfactual Analysis"— Presentation transcript:
1 European Integration and Economic Growth: A Counterfactual Analysis Nauro F Campos Fabrizio Coricelli Luigi MorettiBrunel University Paris School of Economics University of PadovaConference on “Transition Economics Meets New Structural Economics”London, SSEES/UCL, June 2013
2 MotivationAre the countries that joined the European Integration project better-off?Direct costs of EU membership (ok), indirect costs (???), and benefits (??)Voluminous literature on effects of single market, Euro, enlargements, trade and growthRange of estimates from Eichengreen-Boltho to Badinger: without Integration, pci Europe 5-20% lower
3 Counterfactuals are key Counterfactuals and causalityWide use of counterfactuals: “EU average” and “compared to France” (“75% of EU average”)Can we improve upon these counterfactuals?
4 Research Question and Method What would have been the growth rates of per capita GDP and productivity in EU countries if they had not become full-fledged EU members?Synthetic control methods for causal inference in comparative case studies or “synthetic counterfactuals”Abadie et al: AER 2003, JASA 2009, mimeo 2012
5 Method: Synthetic counterfactuals A recent development in econometrics of program evaluation (Imbens and Wooldridge JEL 2009)“artificial control group” (JEL 2009, p. 79)It estimates the effect of a given intervention by comparing the evolution of an aggregate outcome variable for a country “treated” to its evolution for a synthetic control groupImbens, G. and J. Wooldridge (2009), “Recent Developments in the Econometrics of Program Evaluation,” Journal of Economic Literature, 47:1, 5–86.
6 Synthetic counterfactuals (con’t) Researcher specifies: (1) treatment (what and when), (2) matching covariates, and (3) “donor pool” (to synthetic/artificial control group)Method minimizes the pre-treatment distance (mean squared error of pre-treatment outcomes) between the vector of treated country’s characteristics and the vector of potential synthetic control characteristics
7 What is a SYNTHETIC COUNTERFACTUAL? More formally:Be Y an outcome variable (eg. GDP per capita).where is unknow forGiven N+1 the observed countries, with i=1 the treated country and i =2,…, N+1 the control/donor countries, Abadie et al. (AER 2003, JASA 2010) show that:forThe set of weights is with andThus pre-treatment:where Z is a set of covariates/predictors of Y.
9 SYNTHETIC COUNTERFACTUAL: Assumptions Z should contain variables that help the approximation of Y1t pre-treatment, but should not include variables which anticipate the effect.Donor countries (i=2,…,N+1) should not be affected by the treatment.If assumptions (1) and (2) do not hold, it's likely that the estimation of the post-treatment effect is downward biased.Advantages:It allows the study of the dynamic effects.It is designed for case-study, so it can allow the evaluation of treatment independently from: i) the number of treated units; ii) the number of control units; iii) the timing of the treatment.Disadvantages:It does not allow the assessment the significance of the results using standard (large-sample) inferential techniques: only permutation tests on the donor sample (placebo experiment).
10 What did we do? Synthetic counterfactuals method Estimate growth and productivity payoffsEU membershipAll enlargements: 1973, 1980s, 1995, 2004
11 Three key issues Year treatment starts (EU membership) 1973: IRL, DK, UK; 1980s: Greece, SP, Port; 1995: Austria, Fin, Sweden; 2004: Poland CZ etcMatching over which covariates?Similar to Abadie AER 2003: investment, labour force, population, share of agriculture in GDP, level of secondary and tertiary education, etcDonor pool: used a range from whole world to neighbours, but report upper middle income
23 Summary and main findings Strong tendency for the growth and productivity effects from EU membership to be positiveYet considerable heterogeneity across countriesGDP/productivity significantly increase: Denmark, Ireland, UK, Portugal, Spain, Austria, Finland, Estonia, Poland, Latvia and LithuaniaGrowth effects tend to be smaller: Sweden, Czech Republic, Slovakia, Slovenia and HungaryGreece is the only exceptionMagnitude of aggregate, average effect: 10 percent