The Introduction of the Euro and Economic Growth: Some Panel Data Evidence

Abstract

We use a difference in difference estimation framework to analyse the effects of the adoption of the euro on the level of per capita GDP for a sample of seventeen European countries (the EU15 plus Norway and Iceland) over the period 1990-2010. We find that the adoption of the euro may have raised the level of per capita GDP (and labour productivity) by about 4 percent. There is also some evidence that the impact of the euro has been smaller in the case of countries with a high debt-to-GDP ratio in 1999 when the euro was introduced. Results are robust to controlling for country fixed effects, time trends and to estimation strategies that control for crosscountry parameter heterogeneity.

Economic Union, Finance and Growth: A Prognosis in West Africa

“…The empirical strategy employed in this study is based on the literature on the finance‐growth nexus (Levine et al , ; Beck et al , ), and is augmented with economic union in line with some studies on the integration‐growth nexus (Conti, ; Gehringer, ) as follows: where Y = economic growth, FD = financial development, EMU = dummy for economic union that takes the value of 1 from the year economic union was established and 0 otherwise, Z = set of control variables (such as government consumption expenditure relative to GDP, trade openness relative to GDP, human capital and inflation rate), = unobserved country‐specific effect, = time specific‐effect, = independent and identically distributed error term.…”

“…It facilitates trade and increases the demand for financial products, services, instruments, intermediaries and institutions which boost the development of the financial sector. Besides, economic integration has the capacity to promote capital accumulation and productivity growth, which are the channels through which financial development spurs economic growth (Conti, ; Shambaugh, ). Hence, economic integration is expected to have a significant impact on economic growth via the financial sector.…”

“…Economic integration provides opportunities for economic growth because it could enhance international trade, capital accumulation, productivity growth, sound institutions, strong macroeconomic stability, financial integration and financial market development (Conti, ). Using an economic integration index based on the tariffs and the level of regional cooperation, Kamau () revealed that economic integration has a positive relationship with trade and economic growth.…”

“…Conversely, Geda and Kebret () opined that regional integration has no significant effect on bilateral trade flows in the Common Market for East and Southern Africa (COMESA) due to the factors that inhibit the effectiveness of integration such as overlapping membership, poor policy harmonization, absence of diversification and inadequate private sector participation. Conti () also noted that economic union may not be able to enhance economic growth due to some economic and institutional challenges such as productivity gaps and widening trade imbalances among member states, the absence of fiscal and financial union as well as limited power of the common central bank.…”

“…However, theoretical evidence contends that economic union has the potentials to accelerate productivity growth, capital accumulation and economic growth. The possible channels through which economic union could influence economic growth include promotion of international trade, enhancement of sound institutions and strong macroeconomic stability, promotion of international financial integration and financial market development (Conti, ).…”