Norwegian Rhapsody: the Political Economy Benefits of Regional Integration

Abstract: This paper presents the first estimates comparing the net benefits from two types of integration: deep (encompassing economic and political) and shallow (only economic). Our identification strategy utilises the 1995 Scandinavian enlargement of the European Union. Out of four countries, one (Norway) did not join the European Union (deep) but did join the European Economic Area (shallow integration). Using regional data for 1988-2000 and differences-in-differences and synthetic control methods, we estimate significant net benefits from deep integration. Had Norway in 1995 “gone deep,” instead of choosing to pursue shallow integration, productivity between 1995 and 2000 would have been 6% higher.