Ruhr Economic Papers

Ruhr Economic Papers #775

Economic Integration and Growth at the Margin: A Space-Time Incremental Impact Analysis

by Timo Mitze and Philipp Breidenbach

RWI, 10/2018, 41 S./p., 8 Euro, ISBN 978-3-86788-903-2 DOI: 10.4419/86788903

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Abstract

We use the case of EU enlargement in 2004 to investigate the impact of economic integration
on regional income growth. Being particularly interested in studying the effects
‘at the margin’, we track the relative performance of regions adjacent to both sides of
the integration border vis-à-vis non-border regions. We use a space-time incremental
difference-in-difference (IDiD) analysis to account for spatial spillovers, early anticipation
and adjustment dynamics over time. Our findings indicate that EU-15 regions up to
a distance of 100 km from the integration border experience positive integration effects,
but we do not observe additional income growth effects for NMS-10 border regions
compared to non-border regions. The results are found to be robust for alternative regression
specifications including doubly robust estimation, varying sample settings and
placebo tests. Country-specific estimates for the EU-15 finally indicate that in particular
East German regions have benefited from EU enlargement potentially reflecting their
proximity to Poland as largest NMS market, their favorable investment conditions, i.e.
modern infrastructure, and preferential historical ties to the NMS-10.

JEL-Classification: C23, F15, O47, R11

Keywords: Economic integration; regional income growth; EU enlargement; spatial spillovers; space-time incremental difference-in-difference estimation

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