Economic Benefits of Schengen Agreement

The Schengen Agreement, which entered into force for the first time in 1995 in six countries (BENELUX, France, Germany, Italy), has grown over time and now has around 400 million citizens in 26 countries (see Figure 1). Not all EU members are part of Schengen, but some non-EU countries are. All development cooperation countries are members of Schengen, but they have ratified the agreement at different times. From an econometric point of view, Europe`s often-lamented variable geometry is an advantage. It allows us to use panel econometrics to unravel the different effects of eu, euro area and Schengen membership, as well as other trade agreements (e.B, EFTA, EEA or pre-accession treaties). The current migration crisis in Europe is driving policymakers across the continent to new lows again and again. Many are now questioning the Schengen Agreement – the linchpin of integration, which has maintained a borderless area within the European Union since the late 1980s. Late last month, EU interior ministers held a meeting that could speed up the dissolution of the borderless zone. Arguing that Greece had failed to protect the EU`s external borders, they discussed the exclusion of Athens from the Schengen group of countries. Under EU rules, Greece now has three months to react; If the group finds that the problems have not been solved effectively, these Member States have the right to introduce border restrictions. Source: Own calculations from a PPML gravity model using estimates by Felbermayr et al (2016) and applying a commercial elasticity of 5.95% confidence intervals. RTAs are regional trade agreements such as bilateral agreements between the EU and Switzerland or EFTA.

Long lines of trucks once blurred the Alpine landscape of the chocolate box of the Brenner Pass, an important road link between southern and northern Europe. The Schengen Agreement, which entered into force in 1995 and has now abolished border controls between 26 European countries, has allowed these trucks to circulate. But where trucks are moving, so are refugees. To stem the influx, Austria, Denmark, France, Germany, Norway and Sweden have temporarily reintroduced controls. Others have intensified random checks in border regions. Tags: Schengen, refugees, trade, cross-border trade, EU, development cooperation, Europe, border controls, trade agreements Nevertheless, it would be wrong to believe that the euro could not function without Schengen. Ireland and Cyprus are outside Schengen. Both countries may have economic problems, but it has nothing to do with border controls. It is true, however, that the euro area economy is finally gaining momentum. New jobs are created and unemployment is falling.

The introduction of strict border controls, combined with another shock, perhaps from China, could end the recovery. All these measures will undermine Europe`s economic vitality. The Schengen regime, formed in conjunction with the Single European Act of July 1987, has transformed the EU into an important economic centre by ensuring the free movement of people and goods. According to the latest assessment of the "single market" published by the European Commission in 2012, economic integration has led to a further increase in GDP of 2.13% (or €233 billion) and a 1.3% (or 2.77 million) increase in jobs. The same study also shows that intra-EU trade in goods was estimated at €800 billion in 1992, but €2.8 trillion in 2012, or about 22% of the EU`s total GDP. We performed a gravitational regression analysis on data from the World Input-Output Data (WIOD) project (Felbermayr et al. 2016). This separates trade in services and goods and international trade flows from intra-national trade flows. Data are available for 40 countries (including 27 EU members) and were described by Escaith and Timmer (2012). The econometric model follows the recommendations of Head and Mayer (2015). Figure 2 shows that, depending on membership of the EU, the euro area or any other regional trade agreement (and subject to the usual gravitational controls and various effects related to pairs and time), the removal of internal border controls is equivalent to a 0.7 percentage point reduction in a customs duty.

This effect is accurately estimated for goods, but less so for services. Numerous robustness tests in our article confirm this general finding. The US should also be worried: its total trade with the EU amounted to half a trillion euros in 2014 – almost twice as much as at the beginning of this century. .