Economic integration in the EMU and EU: A comparison !

This paper examines economic integration in the European Monetary Union (EMU) as compared to that in the European Union (EU). With the introduction of the euro in 2002, transactions between participating countries have been enabled and price transparency has increased. The introduction of the euro has also lead to the perception of increased economic integration within the EMU. This paper seeks to provide statistical evidence for that perception by using several methods based on the free movement of labor and capital and is therewith the first to apply these methods to the EMU. We find that both Unions are of a high level of economic integration, but the results show no support for the a priori hypothesis that economic integration in the EMU is higher than in the EU. Nevertheless, this paper does fill a gap in the existing literature. Whereas current literature mainly focuses on the relation between the euro and trade volumes, price equalization and inflation stability, this paper concentrates on the free movement of capital and labor, which are two important freedoms of the EMU as well as the EU.