Demographic Trends, EU Enlargement and Economic Growth Zamira Simkins* Walter Park * University of Wisconsin-Superior

What is the EU? Candidates: Croatia, Turkey, Macedonia Potential candidates: Albania, Iceland, Montenegro, Bosnia and Herzegovina, Serbia, Kosovo

Why is EU Enlarging? Official explanation:  “Enlargement is helping the EU cope better with the new world economic order” (Joaquin Almunia).  “The EU has achieved far more through its gravitational pull than it could have ever done with a stick or a sward…we risk if we suddenly stop our accession process” (Olli Rehn). Research proposal: Demographic crisis Population ageing + Low birth rates => Declining active labor force + High unemployment + Increasing life expectancy => Potential economic and welfare system crises Boeri et al (2001): By 2050, key EU-15 countries will have worker-retiree ratio of less than 1 worker per 1 retiree.

Why is EU Enlarging? EU-15 Population pyramid, 2011 EU-10 Population pyramid, 2011 EU-25 Population pyramid, 2011 US Population pyramid, 2011 Age % of population

Theoretical Model and Hypothesis (Jones, 2002) Hypothesis: European integration and enlargement help advance economic growth in the EU, thanks to faster technological progress and technology diffusion (δ h ) and stronger ability of member-countries to collectively balance and diversify individual demographic shocks (δ n, δ p, δ m, δ u )

Empirical Model ( ) g_rgdp_pcAnnual real GDP per capita growth (dependent variable) rejuv_rateRate of labor force rejuvenation retir_rateRate of labor force retirement migr_rateRate of labor force migration unempl_rateRate of ∆ in active LF due to unempl-nt popnoschPercent of total population without schooling ln_avgyrschLog of average years of schooling in total population innov_indexIndex of innovativeness ln_diversityLog of ethno-linguistic fractionalization index X_dev, X = rejuv_rate,…ln_diversity

Robust OLS Regression Results: Country Effects Notes: P-values in parentheses. Coefficients statistically significant at 1% ***, 5% **, 10% *.

Robust OLS Regression Results: Union Effects

Conclusion  Enlarging the union can help the EU boost economic growth and sustain its welfare system, but only temporarily.  Policies aimed at reducing unemployment and persuading older workers postpone retirement are more effective long-term solutions.