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Trade effects of the euro - evidence from sectoral data

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Author Info
Richard Baldwin () (University of Geneva - Graduate Institute of International Studies (HEI), CH-1202 Geneva, Switzerland.)
Frauke Skudelny () (Corresponding author: European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Daria Taglioni () (University of Geneva - Graduate Institute of International Studies (HEI), CH-1202 Geneva, Switzerland.)

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Abstract

This paper contributes to the literature on the impact of EMU on trade, adding two new elements. First, we propose a theoretical model for explaining how the euro could have increased trade by the large amounts found in the empirical literature. Second, we propose a sectoral dataset to test the insights from the theory. Our theoretical model shows that in a monopolistic competition set-up, the effect of exchange rate uncertainty on trade has nonlinear features, suggesting that EMU and a standard measure for exchange rate uncertainty should be jointly significant. Our empirical results confirm this finding, with a trade creating effect between 108 and 140% in a pooled regression, and between 54 to 88% when sectors are estimated individually. Importantly, we find evidence for a trade creating effect also for trade with third countries.

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Paper provided by European Central Bank in its series Working Paper Series with number 446.

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Length: 53 pages
Date of creation: Feb 2005
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Handle: RePEc:ecb:ecbwps:20050446

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Related research
Keywords: Rose effect; exchange rate volatility; monetary union; sectoral trade; gravity.;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
E0 - Macroeconomics and Monetary Economics - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Herwartz, Helmut & Weber, Henning, 2008. "When, how fast and by how much do trade costs change in the euro area?," Economics Working Papers 2008,17, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
    Other versions:
  2. Paul R. Bergin & Ching-Yi Lin, 2008. "Exchange Rate Regimes and the Extensive Margin of Trade," NBER Working Papers 14126, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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)
  4. 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!]
    Other versions:
  5. Paul De Grauwe & Francesco Paolo Mongelli, 2005. "Endogeneities of optimum currency areas - what brings countries sharing a single currency closer together?," Working Paper Series 468, European Central Bank. [Downloadable!]
    Other versions:
  6. Stefano Schiavo, 2005. "Financial integration, GDP correlation and the endogeneity of optimum currency areas," Working Papers 25, Università di Verona, Dipartimento di Scienze economiche. [Downloadable!]
    Other versions:
  7. Sergio de Nardis & Carmine Pappalardo & Claudio Vicarelli, 2008. "The Euro adoption’s impact on extensive and intensive margins of trade: the Italian case," ISAE Working Papers 101, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  8. Freund, Caroline & Pierola, Martha Denisse, 2008. "Export surges : the oower of a competitive currency," Policy Research Working Paper Series 4750, The World Bank. [Downloadable!]
  9. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS. [Downloadable!]
    Other versions:
  10. Aliyu, Shehu Usman Rano, 2008. "Exchange Rate Volatility and Export Trade in Nigeria: An Empirical Investigation," MPRA Paper 13490, University Library of Munich, Germany, revised 17 Feb 2009. [Downloadable!]
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