The Relevance Of Regional Integration In The Euromed Area: Evidence From A Logistic Median-Voter Model

Regional integration in Europe and more generally into the Euro-Mediterranean (Euromed) area has recently been debated and increasingly questioned. The Median-Voter approach provides a methodical way to answering such questions through comparing the relative utility of the median voters before and after the integration. In this study, we suggest a conditional fixed-effect logit model, which relates such a relative utility to some observables, such as differences of countries in factor endowments and technology, to estimate the likelihood of Free Trade Agreement (FTA) creation across the entire Euromed area. Including all FTA partner countries in the world between 1981 and 2019, we estimate the likelihood of FTA creation for all country pairs as well as at country and regional level in the Euromed area. Receiver Operating Characteristic (ROC) metrics shows excellent performance of our model in truly predicting the (past) FTA and No-FTA events. Similarly, a Reverse Backtesting procedure is developed to attribute an FTA realization, from "impossible" to "highly probable", to each estimated probability. With an estimated probability equal to 82.6%, the European integration is qualified as a probable FTA, while the Non-European-Med integration (46.6%) and the overall Euromed integration (60.5%) are perceived as just "possible FTAs".