Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 10-7: Milestones of European Integration: Which matters most for Export Openness?

Sanne Hiller () and Robinson Kruse ()
Additional contact information
Sanne Hiller: Department of Economics, Aarhus School of Business, Postal: Department of Economics, Frichshuset Hermodsvej 22, 8230 Åbyhøj, Denmark
Robinson Kruse: CREATES, Postal: Aarhus University, School of Economics and Management, Bartholins Alle 10, 8000 Aarhus C, Denmark,

Abstract: The European integration process has removed barriers to trade within Europe. We analyze which integration step has most profoundly influenced the trending behavior of export openness. We endogenously determine the single most decisive break in the trend, account for strong cross-country heterogeneity and propose a new measure for the strength of trend breaks. Highly open economies gain from both, monetary and real integration. In sharp contrast, less open economies do not benefit from real integration and even suffer from monetary integration. The major milestones for France, Germany, Italy and the Netherlands are the Euro introduction, the Maastricht Treaty, the Exchange Rate Mechanism I and the merge of EFTA and EEC to the European Economic Area, respectively. Our empirical results have important implications for inner-European economic development, as export openness feeds back into growth, unemployment and income convergence.

Keywords: European Integration; Export Openness; Trends; Structural Breaks

JEL-codes: C22; F02; F15; F41

26 pages, July 1, 2010

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