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Trade Volume Effects of the Euro: Aggregate and Sector Estimates

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  • Flam, Harry

    ()
    (Institute for International Economic Studies, Stockholm University)

  • Nordström, Håkan

    ()
    (Kommerskollegium)

Abstract

The gravity model is used to estimate the trade volume effects of the creation of the European currency union. The euro is estimated to have raised the level of aggregate trade between euro countries in 1998-2002 compared to 1989-1997 by 15 per cent and the level of trade with outside countries by 8 per cent. The effect is clearly increasing over time. Estimates for one-digit SITC sectors yield a concentration of effects to highly processed manufactures, indicating that the spillover is caused by increasing vertical specialization across countries.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 746.

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Length: 35 pages
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:hhs:iiessp:0746

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
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  1. Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003. "The currency union effect on trade: early evidence from EMU," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 315-356, October.
  2. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  4. Silvana Tenreyro & Robert J. Barro, 2002. "Economic effects of currency unions," Working Papers 02-4, Federal Reserve Bank of Boston.
  5. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  6. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  7. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 449-461, October.
  8. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
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