The European ‘Global Macro-Region’ – Lessons for a post-BREXIT world

When Gilles Van Hamme and Kathy Pain edited and co-authored Changing Urban and Regional Relations in Europe: Europe as a Global Macro-region* in 2014 they did not foresee the heated United Kingdom (UK) Brexit debate that would come to dominate recent years. Kathy Pain reflects here on how the book can provide insights into key issues that need to be resolved for the UK’s future relationship with Europe, with or without a deal.

The UK and Europe – an integrated economic space

Dissent about whether the UK is better placed to maintain and improve its position in the world economy with vs without being part of the European Union (EU) has often seemed to lack a robust evidence base. But this book discusses highly relevant empirical results from a two and a half year study by a large interdisciplinary team of academics in the UK, Belgium, France, Italy, Bulgaria and Sweden. The rich datasets analysed reveal just how interlinked and integrated the European economic space is, to the mutual benefit of Europe and the UK.

The results demonstrate why strong functional ties between the UK and Europe need to be protected going forward into a prosperous and resilient post-Brexit economic era.

Distance dependent trade matters
It is shown that despite the advances in virtual communications that now underpin the UK’s global economic relations, Europe remains a surprisingly highly integrated space where most connections and flows are internal. The EU is revealed as by far the most integrated trade area in the world with two thirds of its trade taking place within the ‘block’, corresponding to more than 40 per cent of internal trade in comparison to GDP. As a result, the EU is the only area of the world where internal integration (the ratio between internal trade and GDP) has been higher than the ratio between external trade and GDP.

But a more open EU economy than NAFTA
At the same time, EU ‘opening up to globalization’ has resulted in increasing shares of trade in GDP both for its internal and external trade and a much more open economy than that of the North American Free Trade Agreement (NAFTA), which has a similar total economic size. There are strong human and trade connections between EU and neighbouring countries to the north, east and south, including with the former Soviet Union Republics. However, the integration of Europe in the most high value, strategic global economic networks and flows connects it strongly to the US and distant rapidly developing macro-regions for future economic growth, in particular Eastern Asia and China.

Competing areas of the world have sought to emulate the economically successful EU model of regional integration and openness.

Does EU integration threaten global trade?
Whereas in the 1990s, regional integration was often seen as associated with protectionism, threatening global trade, Europe’s internal and external trade have both proved to develop at very high rates. The embeddedness of Europe’s major cities and urbanised regions in global networks connects it to leading global businesses and flows of foreign investment, specialised services, products and skills. At the top of the international division of labour, Europe is a major player in globalisation and also a large and important market for all kinds of products and services, including high-level financial and business services that have key importance for the economic resilience of London and the growth of the UK’s core cities.

Does the UK need Europe less than the EU needs the UK?

Some parts of the UK have a relatively stronger trade orientation toward North America (12.4 per cent while the average is 6.6 per cent) and Asia, than do most other parts of Europe. However, this trade has a high dependence on advanced global services, especially financial services and linked advanced technological functions that demand specialised knowledge and skills concentrated in more prosperous parts of the UK. Meanwhile, the UK’s level of deindustrialisation has led to its negative trade balances in most manufactured goods. This picture is in sharp contrast to that for Europe’s largest economy, Germany, which has maintained its world trade in high value-added goods while expanding its service economy.

With the global shift of production and service functions to Pacific Asia, retaining access to the large European market is critical to limit job losses in these important sectors of the UK economy. Despite its more pronounced international trade orientation than that of other parts of Europe, the UK needs Europe to maintain it’s close-to-market functions, for example, in automotive global production chains as well as in financial and business services networks.

The importance of open borders and coordinating mechanisms
As by far the most integrated economic macro-region in the world in functional terms, post-Brexit revised border arrangements must therefore not only maintain the present two-way fluid transit of vital products, skills and services but also ensure ease of access between the UK and other the EU countries for major overseas headquartered firms that underpin their openness and generate inward investment, work and jobs. Furthermore, in an increasingly competitive world economy, the creation of new mechanisms for cooperation between the UK and European states post-Brexit, will be essential to maintain the economic vitality and strength of all.

* The study, ‘TIGER:  Territorial Impact of Globalization for Europe and its Regions’, was funded by the European Spatial Observation Network (ESPON).

Kathy Pain is a professor of real estate development and a research director in the University of Reading’s Henley Business School. She holds a PhD in geography and is a Corporate Member of the Royal Town Planning Institute and a Fellow of the Royal Geographical Society. She has published extensively on the sustainable economic and spatial development of cities and regions worldwide. Her research has informed academic and policy thinking in the UK, Europe, North America, the Middle East and Pacific Asia.

Changing Urban and Regional Relations in a Globalizing World: Europe as a Global Macro-Region, edited by Kathy Pain, University of Reading, UK and Gilles Van Hamme, Université Libre de Bruxelles, Belgium