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The Euro Effect on Trade is not as Large as Commonly Thought

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Author Info
Maurice J. G. Bun
Franc J. G. M. Klaassen

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Abstract

Existing studies on the impact of the euro on goods trade report increments between 5% and 40%. These estimates are based on standard panel gravity models for the level of trade. We show that the residuals from these models exhibit upward trends over time for the euro countries, and that this leads to an upward bias in the estimated euro effect. To correct for that, we extend the standard model by including a time trend that may have different effects across country-pairs. This results in an estimated euro impact of only 3%. Copyright Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0084.2007.00448.x
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Publisher Info
Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 69 (2007)
Issue (Month): 4 (08)
Pages: 473-496
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Handle: RePEc:bla:obuest:v:69:y:2007:i:4:p:473-496

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  1. Sergio de Nardis & Roberta De Santis & Claudio Vicarelli, 2008. "The Euro's Effects on Trade in a Dynamic Setting," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 5(1), pages 73-85, June. [Downloadable!]
    Other versions:
  2. Luca De Benedictis & Roberta De Santis & Claudio Vicarelli, 2005. "Hub-and-Spoke or Else? Free Trade Agreements in the Enlarged EU - A Gravity Model Estimate," Economics Working Papers 037, European Network of Economic Policy Research Institutes. [Downloadable!]
  3. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," DNB Working Papers 052, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  4. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Bas Straathof & Gert-Jan Linders & Arjan Lejour & Jan Möhlmann, 2008. "The Internal Market and the Dutch Economy," CPB Documents 168, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  6. Matthias Helble, 2007. "Border Effect Estimates for France and Germany Combining International Trade and Intranational Transport Flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(3), pages 433-463, October. [Downloadable!] (restricted)
  7. Ansgar Belke & Julia Spies, 2008. "Enlarging the EMU to the east: what effects on trade?," Empirica, Springer, vol. 35(4), pages 369-389, September. [Downloadable!] (restricted)
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  8. Helge Berger & Volker Nitsch, 2005. "Zooming Out: The Trade Effect of the Euro in Historical Perspective," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  9. Cardamone, Paola, 2007. "A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models," Working Papers 7282, TRADEAG - Agricultural Trade Agreements. [Downloadable!]
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  10. Tomáš Havránek, 2009. "Rose Effect and the Euro: The Magic is Gone," Working Papers IES 2009/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2009. [Downloadable!]
  11. Vicarelli, Claudio & De Santis, Roberta & de Nardis, Sergio, 2008. "The Single Currency's Effects on Eurozone Sectoral Trade: Winners and Losers?," Economics Discussion Papers 2008-1, Kiel Institute for the World Economy. [Downloadable!]
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  12. Dick van Dijk & Haris Munandar & Christian M. Hafner, 2005. "The Euro Introduction and Non-Euro Currencies," Tinbergen Institute Discussion Papers 05-044/4, Tinbergen Institute, revised 08 Jun 2006. [Downloadable!]
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