The Origins of Regional Integration: Untangling the Effect of Trade on Judicial Cooperation
28 Pages Posted: 18 Sep 2017
Date Written: September 14, 2017
A question looming large in the literature on regional integration is the causal linkage connecting cross-border trade and judicial cooperation. Several empirical studies have cast doubt on the neo-functionalist assertion that transnational economic exchange provided the main initial impetus for domestic courts to use the EU preliminary ruling system. Yet, while critics have misinterpreted the original hypothesis, its proponents have generally failed to address the problem of endogeneity inherent to the relationship between trade and referral activity. Revisiting the trade hypothesis, we attempt to untangle cause and effect by using Bayesian instrumental variable estimation. Our analysis shows that intra-EU trade remains a positive and significant predictor of referral dynamics even when controlling for reverse causality and omitted variable bias. While the impact of trade on Article 267 proceedings has declined substantively over time, our results are consistent with the trade hypothesis as formulated by exponents of economic Neo-functionalism.
Keywords: Judicial behaviour; European Court of Justice; Legal Integration; Bayesian statistics
JEL Classification: K10; K40; N34; C11; C26
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