The regional costs of market size losses in a EU dismembering process

Abstract

The paper measures regional GDP growth losses that a smaller market size caused by the reintroduction of legal and administrative barriers would cause. We model augmented barriers in a Keynesian framework, pointing at four effects: a border effect, stronger for regions close to borders; an exposure effect, stronger for regions open to trade; a centrality effect, affecting areas close to the economic core; a demand concentration effect, stronger for regions close to large trading partners. By estimating border effects with data on EU NUTS 3 regions and simulating a general increase in barriers among EU countries, the four regional effects clearly emerge.