CEPII, Recherche et Expertise sur l'economie mondiale
The Cost of Non-Europe, Revisited

Thierry Mayer
Vincent Vicard
Soledad Zignago

 Highlights :
  • We estimate the trade-related welfare gains from the European Union.
  • Strong estimated trade effect of the EU - rising over time - based on structural gravity.
  • The Single Market increases bilateral trade more than three times as much as a "normal" RTA.
  • The costs of Non-Europe (weighted by country size) are estimated to vary between 3% and 7% on average for the EU depending on the counterfactual ("normal" RTA vs return to WTO rules notably).
  • Wide variation across member countries: small open economies in Europe gain the most, particularly the Eastern part of the continent.

 Abstract :
In this paper we quantify the "Cost of Non-Europe", i.e. the trade-related welfare gains each country member has reaped from the European Union. Thirty years after the terminology of Non-Europe was used to give estimates of the gains from further integration, we use modern versions of the gravity model to estimate the trade creation implied by the EU, and apply those to counterfactual exercises where for instance the EU returns to a "normal'', shallow-type regional agreement, or reverts to WTO rules. Those scenarios are envisioned with or without the exit of the United Kingdom from the EU (Brexit) happening, which points to interesting cross-country differences and potential cascade effects in doing and undoing of trade agreements.

 Keywords : Trade Integration | Gravity | European Union | Brexit

 JEL : F1
CEPII Working Paper
N°2018-06, April 2018

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