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Euros and Zeros: The Common Currency Effect on Trade in New Goods

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  • Baldwin, Richard
  • Di Nino, Virginia

Abstract

This paper tests whether trade in new goods is partially responsible for the pro-trade effects of the euro and provides a measure of the size of the effect. It works with a very large data set (about 16 million observations) covering twenty countries at the most disaggregated level of trade data that is publicly available. Using predictions from a heterogeneous-firms trade model in a multi-country environment to structure our empirical model, we find that the euro had a positive impact on trade overall. Our findings provide supportive but not conclusive evidence for the new-goods hypothesis. We also determined the pro-trade effect of euro-usage on non-Euroland nations trading with euro-users. We confirmed the absence of trade diversion for non-Eurozone EU members with sizeable overall increase comparable to that of members.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5973.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:5973

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Keywords: Eurozone trade effects; extensive margin; heterogenous firms; Melitz model;

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