Growth Effects of European Monetary Union: A Synthetic Control Approach

Lucke, Bernd (2022): Growth Effects of European Monetary Union: A Synthetic Control Approach.

Abstract

How has European Monetary Union (EMU) affected economic growth in the Eurozone? Synthetic control (SC) methods may provide grossly misleading answers if non-EMU control countries are subject to large idiosyncratic shocks or divergent economic policies post treatment. I tackle this problem in two ways: First, using a large panel of EU regional data, all controls are entities which belong to the EU Common Market and thus operate under the same economic, legal and institutional EU framework as the treated unit. Second, I propose a new method where optimal SC weights take proper account of structural characteristics and common shocks in post-treatment time. Using both this and the standard ADH approach I find that EMU has benefited regions with export-oriented and highly competitive companies e. g. in Germany, while it has had sizable detrimental growth effects on most French and Mediterranean Eurozone regions. Over eighteen years, the latter countries seem to have had a cumulative loss in per-capita income of between 15% and 30% vis-à-vis the non-EMU counterfactual.

• Item Type: MPRA Paper
• Language: English
• Keywords: European Monetary Union, synthetic control methods
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions

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