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In the neighbourhood: the trade effects of the euro in a spatial framework

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  • Harry Kelejian

    (University of Maryland)

  • George S. Tavlas

    ()
    (Bank of Greece)

  • Pavlos Petroulas

    ()
    (Bank of Greece)

Abstract

Trade is spatial in nature. However, when specifying trade regressions, spatial issues are typically not accounted for in a satisfactory way. We specify a trade model which relates to the effects that the introduction of the euro had on exports for the euro countries. Our model contains country pair fixed effects and error terms which are spatially and time autocorrelated, as well as heteroskedastic. Our spatial weighting matrix has unique characteristics. Our model also allows for endogenous regressors, and so we estimate it by an instrumental variable procedure. We find that the results of estimation are substantially affected when one accounts for statistical complications. Specifically, euro effects on exports are significantly reduced and are only "borderline" significant. Also, dummy variables measuring the effects of EU-membership on exports become insignificant. The results relating to other variables do not seem to be substantially affected. All of this suggests that, perhaps, the effects of currency unions on trade as described in the previous literature has been severely overstated.

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 136.

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Length: 33
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:bog:wpaper:136

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Keywords: Trade; EMU; Spatial Econometrics; Panel Data;

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References

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Citations

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Cited by:
  1. Douglas Campbell, 2012. "Estimating the Impact of Currency Unions on Trade Using a Dynamic Gravity Framework," Working Papers 121, University of California, Davis, Department of Economics.
  2. Mariam Camarero & Estrella Gómez & Cecilio Tamarit, 2012. "EMU and intra-European trade. Long-run evidence using gravity equations," ThE Papers 10/25, Department of Economic Theory and Economic History of the University of Granada..
  3. Paolo Sgrignoli & Rodolfo Metulini & Stefano Schiavo & Massimo Riccaboni, 2013. "The Relation Between Global Migration and Trade Networks," Working Papers 6/2013, IMT Institute for Advanced Studies Lucca, revised Oct 2013.
  4. Kadiyali, Vrinda & Kosová, Renáta, 2013. "Inter-industry employment spillovers from tourism inflows," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 272-281.
  5. Rodolfo Metulini, 2013. "Spatial gravity models for international trade: a panel analysis among OECD countries," ERSA conference papers ersa13p522, European Regional Science Association.
  6. Parent, Olivier & LeSage, James P., 2012. "Spatial dynamic panel data models with random effects," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 727-738.

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