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The impact of EMU on growth and employment

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Author Info

  • Ray Barrell
  • Sylvia Gottschalk
  • Dawn Holland
  • Ehsan Khoman
  • Iana Liadze
  • Olga Pomerantz

Abstract

This study addresses and evaluates the impacts of the introduction of the euro on both actual and potential output and employment. In order to achieve this, a descriptive and analytical examination of developments before and after the launch of the euro is undertaken, with comparisons drawn between countries that are EMU members and non-EMU members. There are several channels through which the euro may have affected growth and employment: greater transparency and its impact on competitiveness and the effectiveness of the single market; integration of financial markets, which may raise productivity; and a more stable macroeconomic environment, which affects risk and investment decisions. We analyse the impact of each of these channels on the drivers of growth, after controlling for factors such as workforce skills, research base, openness, demographic developments and structural reform on the evolution of output. The central result of our study is that EMU affects output growth directly and also promotes reductions in output and real effective exchange rate volatility and thereby influences the accumulation of productive capital. Many potential concerns preceding the launch of the euro seem to have been unfounded, and our work suggests that the effects of EMU that we observe have been beneficial for economic growth and employment overall. Our analysis suggests that the direct positive effects of EMU are likely to be larger in the core countries, despite their recent slow growth, and that EMU may lead to agglomeration of activities.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 318.

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Length: 62 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:euf:ecopap:0318

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Keywords: EMU; euro; euro and growth; euro and employment;

References

References listed on IDEAS
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Citations

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Cited by:
  1. Crafts, Nicholas, 2012. "Western Europe’s Growth Prospects: an Historical Perspective," CAGE Online Working Paper Series 71, Competitive Advantage in the Global Economy (CAGE).
  2. Andini, Corrado & Cabral, Ricardo, 2012. "Further Austerity and Wage Cuts Will Worsen the Euro Crisis," IZA Policy Papers 37, Institute for the Study of Labor (IZA).
  3. Patrick Leblond, 2011. "The Global Financial Crisis and the European Integration Project," CIRANO Working Papers 2011s-55, CIRANO.
  4. Christian Beer, 2011. "Literature Review on the Economic Effects of the Euro on Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 22–34.
  5. repec:cge:warwcg:70 is not listed on IDEAS
  6. Ewald Nowotny, 2012. "Der Euro - Vergangenheit, Gegenwart, Zukunft," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 38(2), pages 273-284.
  7. Crafts, Nicholas, 2013. "What Does the 1930s’ Experience Tell Us about the Future of the Eurozone?," CAGE Online Working Paper Series 142, Competitive Advantage in the Global Economy (CAGE).
  8. Nicholas Crafts, 2013. "Long-Term Growth in Europe: What Difference does the Crisis Make?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages R14-R28, May.
  9. repec:cge:warwcg:141 is not listed on IDEAS

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