Differences in integration utility of the EU member states

Keywords: integration, utility, international union, member state, European Union, index, benefit.

Различия в интеграционной полезности для государств-членов Европейского Союза

Бояр А.

Ключевые слова: интеграция, полезность, интеграционное объединение, государство-член, Европейский Союз, индекс, выгода.

Відмінності в інтеграційній корисності держав-членів Європейського Союзу

Постановка проблеми. Міжнародна інтеграція в останні десятиріччя розвивається небувалими темпами в усіх мегарегіонах світу. Цей процес є невідворотним і майже усі країни втягнуті у нього. Саме тому питання міжнародної інтеграції є актуальними і цікавими з когнітивної точки зору, особливо коли йдеться про наслідки та ефекти певного наднаціонального інтеграційного проєкту для його держав-членів.

Аналіз останніх досліджень і публікацій показав, що інтеграційна корисність є категорією, яка використовується в поодиноких наукових дослідженнях як детермінант поведінки держав-членів у певному інтеграційному об'єднанні. Однак не виявлено праць, в яких досліджувалась би корисність держав від їх участі в певному інтеграційному проєкті.

Мета статті - розроблення можливої методики оцінки інтеграційної корисності держав від їх участі у певному інтеграційному об'єднанні та апробація цієї методики на прикладі Європейського Союзу.

Матеріали та методи. Питання методики оцінки інтеграційної корисності є складним і малодослідженим у вітчизняній та закордонній науковій літературі. З кількох гіпотетично можливих підходів до такої оцінки обрано індексний метод, суть якого полягає у розрахунку за 100- бальною шкалою індексного показника інтеграційної корисності, який складається з п 'яти компонентів корисності: економічної, соціоекономічної, безпекової, політичної та екологічної. Вагові коефіцієнти кожного з компонентів розраховуються за кількістю інституціональних структур, які забезпечують реалізацію співробітництва у відповідних сферах.

Результати дослідження. Розраховані таким чином інтегральні індекси інтеграційної корисності демонструють суттєві розбіжності держав-членів ЄС за вигодами від інтеграції у 2017 р. Виявлено, що Люксембург, Бельгія, Словаччина і Нідерланди належать до держав, які одержують найбільшу корисність, у той час як Великобританії, Латвії, Фінляндії і Мальті притаманні найменші значення відповідних показників.

Висновки. Диференціація держав-членів інтеграційного об'єднання за рівнями корисності від свого членства в ньому є цікавою не лише у когнітивному плані, а й у практичному. Зокрема така інформація може використовуватися представниками держав з низькими показниками інтеграційної корисності під час ведення політичних «торгів» щодо своєї участі (зокрема фінансової) у наднаціональних програмах та ініціативах об'єднання.

Показники інтеграційної корисності можуть слугувати основою для побудови справедливої схеми внесків до спільного бюджету об'єднання, коли більші платежі здійснюють держави-члени з найбільшими здобутками, що посилить політичну та фінансову стабільність інтеграційного об'єднання.

Ключові слова: інтеграція, корисність, інтеграційне об'єднання, держава-член, Європейський Союз, індекс, вигода.

Background

International integration has accelerated significantly during last decades worldwide. The process seems to be inexorable and the vast majority of the world countries are involved in it. It makes the issue of international integration interesting and important in cognitive terms especially when consequences and effects of a particular international or supranational integration project are under consideration. In this article a methodology to estimate utility of an international union member states is proposed.

Utility is a term used to describe gains of a person from some activities undertaken by it. The utility of the consumed goods (or a set of goods) is the most widespread case in Economics. In this study we refer to the utility obtained by member states of an international union as a result of their participation in the integration project under consideration (further - integration utility). There is no doubt that integration utility distributes unevenly among integrating countries since their preferences differ. To make an attempt to differentiate this category in per state split for particular international union (the EU) is what we undertake further.

It must be noted that an international union in this study is regarded as a voluntary association of sovereign states that decide to centralize or coordinate certain policies and confer corresponding powers to central supranational bodies.

The main difficulties of quantitative evaluation of integration utility occur when we go beyond economic effects and undertake an attempt to assess environmental, social, security and political outcomes of integration as they cannot be directly quantified. Furthermore, in practice all components of integration utility are interlinked and correlated which makes it even more complicated to carry out the structural analysis of this category.

It is difficult to operate with the category «utility» (as well as «preferences») because there is no unity of interests among member states of an international union. Therefore, the universal formula to determine absolute values of integration utility cannot be applied. The same conclusion but with respect to consumer utility was made by J. Hicks in late 1930-s [1].

Analysis of recent research and publications

The notion of integration utility was shortly discussed only in two earlier studies. A. Alesina, I. Angeloni and F. Etro [2] and J. Simon and J. Valasek [3] treat it as a determinant of states' behavior under conditions of integration. However we haven't revealed other studies dealing with the issue of integration utility in other contexts or focusing on this concept as a primer object of research.

The relationship between interstate redistribution of international union budgetary funds and economic benefits that members of the union attain from the integration has become a principal issue of two theories. The first one - national costs/benefits theory - was developed by C. Carruba [4] and S. Hix [5]. According to this theory international union budget is an equilibrium outcome of intergovernmental bargains during which members that are more interested in creation of a common economic space (primarily export-oriented economies) «buy» acceptance of the market liberalizing policies from countries that gain less (or lose) in the process. The authors argue that the EU case confirms the theory. Their approach as for using intra-export indicators as proxies to describe (differentiate) economic benefits from integration is employed here in our study as well.

The theory of economic needs is the second one. Its developer [6] considers fiscal transfers (in the EU) as a function of economic needs. That is the poorer (by GDP per capita) the union member is, the larger net budgetary transfers it receives. However evidence for this theory was found only for the EU case. For most other international unions it is not likely to work since the EU so far has carried out redistributive cohesion policy not proper for international unions.

The aim of the article is to propose a method for estimation of integration utility of states (countries) from their membership in a particular international union and to apply this method for the European Union case.

Materials and methods

Integration utility is a direct consequence of outcomes of international union policies. The latter, being a reflection of the union goals, are realized through regulatory (legislative and institutional framework) and fiscal (budgetary revenues and expenditures) tools. Legislative and institutional framework of a union includes its legislation in force, set of institutions, location of their headquarters, decision-making procedures As for decision-making procedures there is evidence that members that are more represented in bodies of a union can bargain more beneficial projects (and hence get more utility) financed through union budget via vote-trading mechanisms [7; 8]. etc. All these links are demonstrated in figure 1.

Figure 1. Relationship between objectives of an international union and its members' integration utility

Source: developed by the author.

Union institutions can be empowered for policies where members' preferences are considerably heterogeneous. In that case some of the states can appear to be short in expected effects from the integration project and as a result their utility will decrease. Similar results may occur if there are glitches at any link of the demonstrated in the figure 1 chain.

Generally speaking, utility is quite complex category. For members of an international union it is determined by a number of economic, political, social, security and other factors. When economic integration is in the main focus economic characteristics (components) of utility obviously come forth. Among others they include enlargement of markets accessible for national products, enhancement of production factors mobility and, as a result, their better allocation, improved conditions for investments and competitiveness. Finally it leads to stabilization and acceleration of economic growth. Actually all these parameters can be quite precisely described quantitatively and used to differentiate utility created by integration for members of the union.

But integration utility has not only macroeconomic dimensions. There are also social (including socioeconomic), security, political and ecological benefits of integration. They are expressed in improved wellbeing and quality of life and work of citizens, strengthened security guarantees of a state, increased political «weight» of a state inside and outside the union, improvement of environmental situation in the regions of a state respectively.

Integration utility can be estimated individually for each member or universally according to «one for all» formula. It is possible to use the latter approach because of quite steady understanding of integration utility components for all members (economic, social, political, security and ecological). But using universal approach doesn't allow taking into account possible difference in the «weight» of these utility components for different states. This shortcoming is not proper for individual approaches but the latter can be fraught with subjective, biased and discriminative with respect to other members' estimation. To avoid these problems some combination of the two approaches should be employed.

As we see it there are three methods based on universal approach that can be used to estimate integration utility. They are index, proxy or econometric techniques.

Index utility indicators should result from synthesis of quantitatively expressed determinants of various components of the utility. Indicators describing the components should allow for variations in size of member states (in economic potential, population, area), that is they should be expressed in relative but not absolute terms. Each utility component should be estimated in terms of its share in total utility and appropriate weight coefficients established. The weight coefficients can vary significantly depending on the type and level of international union. In case of free trade area or custom union economic and socio-economic utility components will be dominant. Single market and, moreover, economic union will additionally include political, security and, possibly, ecological utility. For example, composite index of integration utility (R_;) for each state i taking part in a complicated in form international union The one that create sall five utility components. for a particular period of time can be calculated as follows [4]:

R = aEn_i + bSE_i + cSr_i + d Pl_i + g El_t, (1)

with a, b, c, d, g being weight coefficients for each utility component including:

En - an economic component that reflects improved conditions for national producers of goods and services and for economic development in general;

SE - socioeconomic component showing improved well-being, quality of life and work of citizens;

Sr - security component that demonstrates strengthened security guarantees (political and military, energy, food, etc.) of a state;

Pl - political component (increased political «weight» of a state inside and outside the union);

El - environmental component reflecting improvement of the environmental situation in the regions of a state.

We use this index technique to assess integration utility of the EU Member States in this paper (see next section).

Employing proxy technique a researcher uses separate indicator(s) that, in his/her view, is the best one to reflect integration utility (effects). In case of free trade area or custom union values of intra-export can serve as such proxies since those types of international unions provide mainly for trade liberalization. The fact that there is no single statistical indicator that could stand for a proxy of all the utility components taken together is the main weakness of a proxy technique. It also allows manipulating with the utility category using different proxy indicators. Simplicity in understand- ding and use are the technique's advantages.

Econometric methods can also be applied to establish relationship between integration utility (dependent variable) and its determinants (independent variables). However it doesn't seem possible to build up corresponding regression model without preliminary estimation of utility values using the first two or some other techniques.

Individual approach can be based on the same (as the universal one) techniques but correction to peculiarities of each member state should be made. Mainly it concerns of the weight coefficients in the equation (1).

Finally, it should be noted that the suggested methods do not provide calculation of absolutely true values of integration utilit. But they definitely can be used to differentiate these categories and that is enough for our analysis.

Results. Relative integration utility estimates are obtained for 2017 using index technique shortly presented above (equation (1) and discussed in more details in our earlier study [9]. But to demonstrate how the technique is adjusted to the EU case we need to be more specific.

Weight coefficients from the expression 1 are obtained by making them proportional to the number of union bodies that operate within each of the integration utility components. For instance, we revealed 77 institutional structures operating in the EU Considering European Commission DG-s and services as separate bodies and omitting purely administrative ones.. 35 of them serve production and macroeconomic purposes (component En), 44 pursue socioeconomic goals (SE), 17 deal with security issues (Sr), 13 operate within political utility component (PI) and 8 - within ecological component (E/) Some bodies can execute powers in more than one utility component.. Having determined a share of each group in total quantity of structures we obtained fractions (that theoretically could range from 0 to 1) that reflect institutional «attention» to and, thus, political weight of each sector of common interest in the EU in tab/e 1. These are the figures treated as weight coefficients for the utility components It should be noted, however, that this method can be used only in international unions of high integration level where quite a few common supranational bodies have been created.. Hence, composite indexes of integration utility for each of the EU Member States can be calculated on such formula:

R (EU) = 0,299 En_i + 0,376 SE_t + 0,145 Sr_t + 0,111 Pl_t + 0,068 El_t

But in order to do it we need good proxy indicators for each of the utility component. Having considered a few possible alternatives Again, for discussion on this issues refer to [9]. we have chosen:

• a percentage share of intra-exports of goods and services in total exports of a state (averaged for years 2008-2017) as a proxy for economic component (En);

• a percentage share of citizens who think that their country's membership in the EU is a good thing as a proxy for socioeconomic component (SE);

• a percentage share of citizens who support (are «for») the EU common defense and security policy as a proxy for security component (Sr);

• a percentage share of citizens who support (are «for») the EU common foreign policy as a proxy for political component (P/);

• a percentage share of citizens who think that the EU plays positive role in protecting the environment as a proxy for ecological component (E/).

In our opinion it is hard to find better proxies for the first two utility components (the most weighted ones). But for the rest of them the issue is rather debatable. In cases where we use sociological data as proxies it is assumed that a representative citizen has an adequate vision (perception) of benefits received by his/her country from membership in the EU. Public opinion data were taken from Eurobarometer website for the best available year (closest to 2017). Since all the proxy indicators are expressed in percentage terms there is no need to bring them to single scale; they all are commensurable.

Table 1 Calculation of weight coefficients for utility components in the EU using institutional approach