The Euro's Effects on Trade in a Dynamic Setting

Abstract

This paper provides an update on estimates of the euro effect on trade integration among EMU economies, taking into account the aggregate bilateral exports of 23 OECD countries for the sample period 1988-2004. We consider 13 exporting European countries and 23 importing industrialized countries We utilize the dynamic panel data estimator proposed by Blundell and Bond (1998) and introduce controls for heterogeneity. The results of our dynamic specification of the gravity equation yield an estimate of the short run intra-Eurozone pro-trade effect, following the adoption of the single currency, which is as high as around 4% (17% in the long run). This finding, slightly lower than the results set out in our previous studies, is in line with those of very recent empirical analyses using dynamic specification of the gravity equation. It is also consistent with the already tight trade links characterizing the economies that have adopted the euro.

The Euro and Firm Restructuring

“…The benefi ts from the use of a common currency-lower transaction costs, no exchange rate risk, better price and cost transparency-are expected to enhance openness to trade and investment, as well as to foster competition. Indeed, since the launch of the euro, bilateral trade among EA members has expanded far more rapidly than trade with other EU countries (European Commission 2008;Baldwin 2006;de Nardis, De Santis, and Vicarelli 2008). Our results suggest that these channels too have had little impact on sectoral reallocation.…”

The Euro and Firm Restructuring

“…The benefits from the use of a common currency -lower transaction costs, no exchange rate risk, better price and cost transparency -are expected to enhance openness to trade and investment, as well as to foster competition. Indeed, since the launch of the euro, bilateral trade among EA members has expanded far more rapidly than trade with other EU countries (European Commission 2008, Baldwin 2006, de Nardis, De Santis & Vicarelli 2008. Our results suggest that these channels too have had little impact on sectoral reallocation.…”

Export competitiveness of Central and Eastern Europe since the enlargement of the EU

“…A large number of studies have attempted to estimate the effect of the EU, and in particular the formation of the eurozone, on trade patterns, with most adopting the gravity model approach (early papers include Rose, 2000, Barr et al, 2003, Flam and Nordstrom, 2006, and de Nardis et al, 2008. Rose (2009) found that trade increased by between 8 to 23 percent as a result of the eurozone, while Baldwin (2006) finds somewhat more modest results.…”