The United States of Europe: A Gravity Model Evaluation of the Four Freedoms

Keith Head (1) , Thierry Mayer (2)

1 UBC - University of British Columbia
2 ECON - Département d'économie (Sciences Po)

One of the pillars of the 1957 Treaty of Rome that ultimately led to the European Union is the commitment to the four freedoms of movement (goods, services, persons, and capital). Over the following decades, as the members expanded in numbers, they also sought to deepen the integration amongst themselves in all four dimensions. This paper estimates the success of these policies based primarily on a gravity framework. Distinct from past evaluations, we augment the traditional equation for international flows with the corresponding intra-national flows, permitting us to distinguish welfare-improving reductions in frictions from Fortress-Europe effects. We complement the gravity approach by measuring the extent of price convergence. We compare both quantity and price assessments of free movement with corresponding estimates for the 50 American states.

Domains: Humanities and Social Sciences; Economics and Finance

Keith Head, Thierry Mayer. The United States of Europe: A Gravity Model Evaluation of the Four Freedoms. Journal of Economic Perspectives, 2021, 35 (2), pp.23-48. ⟨10.1257/jep.35.2.23⟩. ⟨hal-03796129⟩