DP 2023/4 - El-Shagi, M. / Yamarik, S.: Growth Effects of EU Expansion: A Penalized Synthetic Control Method

Makram El-ShagiSteven Yamarik

CFDS Discussion Paper 2023/4

Abstract

This paper applies a penalized synthetic control method to estimate the growth effects of European Union (EU) enlargement. A penalized synthetic control estimator introduces a penalty term in the synthetic matching algorithm that penalizes discrepancies between the treated economy and its synthetic counterpart. We use this estimator to construct counterfactuals of the growth rate of GDP per capita for the EU accession countries. Standard synthetic control results show that a country’s accession into the EU generates an almost uniform positive impact on the level of real GDP per capita. However, by applying the penalized synthetic control estimator to the growth rate, we find that most of these positive effects become insignificant and some even become negative.

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