GROWTH EFFECTS OF EUROPEAN INTEGRATION

This paper deals with the effects of European integration in the EC an d EFTA on economic growth. Base regressions suggest that EC and EFTA m emberships do in fact have a positive and significant effect on econom ic growth, and that there: is no significant difference between EC and EFTA membership. This result is not completely robust with respect to changes in the set of control variables and to measurement errors. No netheless, the results suggest that regional integration may not only affect resource allocation, but also long-run growth rates. This concl usion is strengthened by the fact that we obtain similar results when we use panel data for a sample of OECD countries. A number of tests ar e also conducted to ascertain that the EC/EFTA variable is not primari ly a proxy for the effect of economic development. In addition, we exp lore possible indirect effects of regional integration.