The Positive Effects Of The Schengen Agreement On European Trade

Chart 3. Total EU-28 trade in billions of euros along the number of Schengen borders exceeded, 2011 We carried out a gravitational regression analysis on data from the World Input Output Data (WIOD) project (Felbermayr et al. 2016). This separates trade in services from trade in goods and international trade from intra-domestic trade. The data are available for 40 countries (including 27 EU members) and have been described by Escaith and Timmer (2012). The econometric model follows the recommendations of Head and Mayer (2015). Chart 2 shows that, depending on membership of the EU, the euro area or other regional trade agreements (and provided that the usual severity controls and a multitude of couples` wages and time) the removal of internal border controls amounts to a reduction in tariffs of 0.7 percentage points. This effect is estimated precisely for goods, but less for services. Numerous robustness tests in our paper confirm this general finding. Chart 4. Average reduction in Schengen trade costs for intracontinental trade of different countries, 2011 In response to the massive influx of refugees, Germany introduced border controls at the Austrian border in September 2015; in November, Sweden began carrying out identity checks on the bridge of the Eresund; And Austria has re-established controls on its border with Slovenia and Italy.

The terrorist attacks in Paris in November 2015 led to checks at the French borders. Taking into account all border controls notified to the European Union since the summer of 2015, in accordance with Articles 23 and following of the Schengen border code, and applying our estimates, we find that total trade in goods and services from EU-28 countries decreases by an average of 1.3% compared to the 2011 status quo; this corresponds to an annual decrease of 70.19 billion euros in the volume of trade. With a trade elasticity of 5 in the welfare formula of Arkolakis et al. (2012), this effect reduces the real GDP of EU28 members by 12.51 billion euros, or 0.10% of GDP. However, there is a high degree of heterogeneity, as countries are different in terms of the importance of trade with partners in south-eastern Europe (see Chart 5).