Testing the Links between Institutional Integration and Trade Deepening: Clues from Europe |
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| Authors: | Itai Agur Ettore Dorrucci Francesco Paolo Mongelli |
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| Institution: | (1) European University Institute, Villa San Paolo, Via della Piazzuola 43, 50133 Florence, Italy;(2) European Central Bank, Kaiserstrasse 29, 60311 Frankfurt/Main, Germany |
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| Abstract: | This paper investigates the interaction between institutional integration and trade deepening in the EU over the last 50 years.
It uses Granger causality tests, a VECM and variance decompositions to further the understanding of this interaction. The
evidence indicates two-way endogeneity. But the link from institution building to trade dominates. Yet, this link has weakened
over time, possibly due to globalisation sidestepping institutions. Moreover, the sensitivity of institutional integration
to trade deepening has risen, which suggests that economic forces have gained more strength in determining institutional steps.
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| Keywords: | Optimum currency area Endogeneity Institutional integration Trade EU |
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