The origins of regional integration: Untangling the effect of trade on judicial cooperation

Several empirical studies have cast doubt on the causal nexus between economic and legal integration posited by economic Neo-functionalism in the EU context. Critics, we argue, have misinterpreted the original causal hypothesis. Economic Neo-functionalism specified a dynamic rather than time-invariant relationship between EU law use and transnational economic exchange. Yet both proponents and critics of economic Neo-functionalism have failed to adequately address the problem posed by endogeneity. Revisiting the neo-functionalist trade hypothesis, we attempt to untangle cause and effect using Bayesian instrumental variable estimation. Our research shows that intra-EU trade remains a positive and significant predictor of referral dynamics even when controlling for reverse causality and omitted variable bias. The impact of intra-EU trade on Article 267 proceedings has declined substantively over time. But this result is consistent with the neo-functionalist formulation of the trade hypothesis, which characterised intra-EU trade as an initial catalyst rather than as a constant driver of legal integration.