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Growth Effects of European Monetary Union: A Synthetic Control Approach

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  • Lucke, Bernd

Abstract

After more than 20 years of European Monetary Union (EMU), surprisingly few scientific studies exist which study the growth effects of introducing a common currency in large parts of the European Union. I do so using a large panel (NUTS3 data) of regional data for the EU-15. Some 800 (treated) regions were subject to a policy intervention when their country joined the Euro, while some 200 control regions were not. In a synthetic control approach as explored e. g. by Abadie, Diamond and Hainmueller (ADH, 2010), I estimate the causal effects of EMU both with the standard ADH-methodology and with a novel approach which estimates counterfactuals from the control group in post-treatment time. The results from both approaches are very similar: 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, these losses in growth cumulate to losses in per-capita income of between 15% and 30% vis-à-vis the non-EMU counterfactual.

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  • Lucke, Bernd, 2022. "Growth Effects of European Monetary Union: A Synthetic Control Approach," MPRA Paper 120662, University Library of Munich, Germany, revised 27 Mar 2024.
    • Handle: RePEc:pra:mprapa:120662
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    More about this item

    Keywords

    European Monetary Union; synthetic control methods;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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