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The impact of European integration on institutional development

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  • Schönfelder, Nina
  • Wagner, Helmut

Abstract

This paper investigates the speed of institutional development induced by European integration. The hypotheses are the following. The prospect for European countries to join the EU disposes them to strengthen their institutions, so that the speed of institutional development is high. Furthermore, EU Member States preparing for the introduction of the euro have incentives to develop their institutions, but the speed of institutional development is much lower. As soon as Member States introduce the euro, institutional development grinds to a halt, or is even reversed, as there could be incentives to undo reforms. To test these hypotheses, we estimate a dynamic panel data model, in which the institutional development is measured as positive changes in Worldwide Governance Indicators (WGIs). The WGIs are explained by the “status” of the European countries (i.e. being a member of the euro area, a Member State of the EU preparing to adopt the euro, an acceding country, a candidate country, a potential candidate country or none of the above) and additional controls. To sum up the findings, we can confirm a positive effect of prospective EU membership. Being a Member State does not influence the institutional development path. However, for members of the euro area, there is robust evidence for institutional deterioration in one particular area, namely control of corruption.

Suggested Citation

  • Schönfelder, Nina & Wagner, Helmut, 2015. "The impact of European integration on institutional development," MPRA Paper 63392, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:63392
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    2. Ehigiamusoe, Kizito Uyi & Lean, Hooi Hooi, 2019. "Do economic and financial integration stimulate economic growth? A critical survey," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-27.
    3. World Bank Group, 2016. "Global Economic Prospects, January 2016," World Bank Publications - Books, The World Bank Group, number 23435.

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    More about this item

    Keywords

    Institutional development; transition economies; European integration; euro area; panel data;
    All these keywords.

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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