Institutional quality and geography of discontent in the EU

JCMS |

by Burhan Can Karahasan (MEF University) and Mehmet Pinar (Universidad de Sevilla and Istanbul Bilgi University)  

In the 2016 Referendum, with a Leave vote of 51.89%, the United Kingdom (UK) became the first country to withdraw from the European Union (EU) officially. While the political and economic consequences of the Brexit process are still evolving, there is also continuous debate for understanding what really caused the Brexit. Some argue that the main source of the problem was economic, while others underline the failure of EU institutions to absorb the enlargement process. However, all agree that the EU integration fails to understand the evolution of enormous dissatisfaction within the EU.

Discussing discontent with globalization is not a new phenomenon. This motivates many social scientists to analyze the economic, demographic and social factors shaping the evolution of political dissatisfaction. New evidence shows that the source of discontent can be visible at the very local level of our daily life. In our recent contribution to JCMS, we find that not only does the economic well-being of regions matter, but that local institutions also play a crucial role in understanding EU dissatisfaction. We believe this can be critical for restoring the people’s belief in the EU integration.

Local institutions and economic prosperity

Quality of institutions shapes the local socio-economic environment. One dimension can be the better allocation of public resources in more institutionally advanced regions. Transparent and accountable institutions use public sources more effectively. From the EU context, this can also relate to the distribution of structural funds that aim to sustain regional cohesion across the EU regions.

Regions with better institutions are also good location candidates for domestic and international investment. Therefore, it would not be naïve to expect regions with better institutions to attract private and public investment.

Another crucial aspect of local institutions is the ability to attract innovative and creative people. This is central to productivity advances at the very local level. Additionally, one may expect institutionally more developed locations to be attractive for entrepreneurial activities. Naturally, local institutions must be perceived as an important driver for the evolution of a more productive human capital base at the local level.

If economic conditions matter for EU dissatisfaction and economic conditions are shaped by institutional development, then what about the power of local institutions to understand EU dissatisfaction?

Institutions, socio-economic conditions and rising local discontent

Not surprisingly, institutions are going to matter for understanding the rising dissatisfaction among the EU regions. Our analyses show that regions with better institutions realize lower EU discontent. These regions vote less for political parties that follow anti-EU rhetoric. This voting pattern can be explained by improving economic conditions as well as rising trust in the EU because of local institutional improvements.

What about the interplay between institutions and the power of socio-economic conditions? In general, we are not centrally interested in the impact of economic conditions on populist and anti-EU voting. This has been extensively discussed, with a consensus that worsening socio-economic conditions spur EU dissatisfaction.

What is missing is the influence of institutions to alter the impact of socio-economic conditions on EU dissatisfaction. For instance, declining per capita GDP is a core determinant of the EU discontent. However, this impact is relatively weaker for regions with better institutions. From a different perspective, more urbanized regions with better institutions also have more EU dissatisfaction. This signals the potential spillovers of economic independence towards political liberation in institutionally more developed regions.

Conclusion

After the global financial crisis, developed countries started to realize rising dissatisfaction with globalization. The main drivers of the discontent are linked with local economic and industrial decline, immigration, and socioeconomic deterioration of the citizens. The EU is one of the main areas of research on this issue due to the realization of the Brexit process.

We agree that socio-economic conditions of regions matter for understanding the source of the EU dissatisfaction. However, the strength of the socio-economic factors in explaining EU dissatisfaction differs based on the institutional development level of the regions. This shows the complexity of the policy-making process. Even though socioeconomically and industrially declining regions are the main source of the discontent, we find out that this effect is weaker if the region has better institutions.

What do we learn from these findings? Better institutions are essential as they increase trust and belief in EU integration. From a different angle, better institutions accelerate the resilience of regions. Even in worsening socio-economic conditions, regions with better institutions are still attached to the main idea of EU integration.


Burhan Can Karahasan is a Professor of Economics at the MEF University. He is also a Research Fellow for the Economic Research Forum (ERF). Karahasan was also a visiting fellow at the London School of Economics (2014) and the University of Barcelona (2010). You can follow him on Twitter.

 

Mehmet Pinar completed his Ph.D. at the University of Guelph in 2011 and is currently a Maria Zambrano fellow at the University of Seville. He is also a senior fellow of the Rimini Centre for Economics Analysis and a senior fellow of the Higher Education Association. You can follow him on Twitter.