The Cost of Non-Europe, Revisited

Abstract

In this paper we quantify the Cost of Non-Europe, i.e. the trade-related welfare losses that would occur under different scenarios of undoing the European Union. Thirty years after the terminology of Non-Europe was used to give estimates of the gains from further integration, we use modern versions of the gravity model to quantify the trade creation implied by the EU, and apply those to counterfactual exercises where for instance the EU returns to a shallow-type free trade regional agreement, or reverts to WTO rules. Those scenarios are envisioned with or without the Brexit happening, which points to interesting cross-country differences and potential cascade effects in doing and undoing of trade agreements.

Keywords: Trade integration, Gravity, European Union

JEL Classification: F1