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The euro impact on trade. Long run evidence with structural breaks

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Author Info

  • Mariam Camarero

    (Department of Economics, Jaume I University, Castellón)

  • Estrella Gómez

    (Department of Economic Theory, University of Granada)

  • Cecilio Tamarit

    (Department of Applied Economics II, University of Valencia)

Abstract

In this paper we present new evidence on the euro effect on trade. We use a data set containing all bilateral combinations in a panel of 26 OECD countries during the period 1967-2008. From a methodological point of view, we implement a new generation of tests that allow solving some of the problems derived from the non-stationary nature of the data. To this aim we apply panel tests that account for the presence of cross-section dependence as well as discontinuities in the non-stationary panel data. We test for cointegration between the variables using panel cointegration tests, especially the ones proposed by Banerjee and Carrióni- Silvestre (2010). We also efficiently estimate the long-run relationships using the CUP-BC and CUP-FM estimators proposed in Bai et al. (2009). We argue that, after controlling for cross-section dependence and deterministic trends and breaks in trade integration, the euro appears to generate lower trade effects than predicted in previous studies.

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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1209.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1209.

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Length: 31 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:eec:wpaper:1209

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Keywords: Gravity models; trade; panel cointegration; common factors; structural breaks; cross-section dependence;

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  1. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2008. "Trade effects of monetary agreements: Evidence for OECD countries," European Economic Review, Elsevier, vol. 52(4), pages 733-755, May.
  2. Jushan Bai & Serena Ng, 2004. "Evaluating Latent and Observed Factors in Macroeconomics and Financ," Econometrics 0408007, EconWPA.
  3. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
  4. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  5. Bai, Jushan & Kao, Chihwa & Ng, Serena, 2009. "Panel cointegration with global stochastic trends," Journal of Econometrics, Elsevier, vol. 149(1), pages 82-99, April.
  6. Suzanne McCoskey & Chihwa Kao, 1998. "A residual-based test of the null of cointegration in panel data," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 57-84.
  7. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  8. Jarko Fidrmuc, 2009. "Gravity models in integrated panels," Empirical Economics, Springer, vol. 37(2), pages 435-446, October.
  9. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
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