The Benefits of the EU Single Market: Evidence from the Gravity Model

Abstract Empirical economic studies based on gravity models have generally portrayed European integration in a highly positive light. However, the success of Eurosceptic parties in the German regional elections and the Dutch legislative elections highlights growing resistance to further integration. This phenomenon may be explained by the fact that the benefits of integration are often not immediately visible; they tend to manifest indirectly through increased trade volumes between member states. Nevertheless, these political outcomes also cast doubt on the reliability of modelling results, Therefore, our goal is to quantify the impact of EU membership on sectoral trade flows using a gravity model of foreign trade for the period of 2006–2017. To achieve this, we conducted over 850 regressions. Our analysis indicates that exports between EU member states are, on average, 20%–30% higher throughout the business cycle compared to similar non-EU countries. Additionally, we assessed the distribution of membership benefits across individual member states. Our findings reveal that Hungary, Slovakia, and Czechia experienced the most significant increases in trade with other EU countries.