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When, How Fast and by How Much do Trade Costs change in the Euro Area?

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Author Info
Helmut Herwartz
Henning Weber

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Abstract

Microfoundations of the euro’s effect on euro area trade hinge on the timing, the speed and the size of adjustment in trade costs. We estimate timing, speed and size of adjustment in trade costs for sectoral trade data. Our approach allows for sector specific impacts of trade costs on sectoral trade while controlling for unobserved but time-variant variables at the sector level. We find that, due to falling trade costs, trade within the euro area increases between the years 2000 and 2003 by 10 to 20 percent compared with trade between European countries that are not members of the euro area. Adjustment of individual sectors is extremely fast whereas aggregate adjustment spreads out because different sectors adjust at distinct times.

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Publisher Info
Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-065.

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Length: 35 pages
Date of creation: Oct 2008
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Handle: RePEc:hum:wpaper:sfb649dp2008-065

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Related research
Keywords: Euro trade effect; gravity model; smooth transition; Kalman filter;

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Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F15 - International Economics - - Trade - - - Economic Integration
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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    Other versions:
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society. [Downloadable!]
    Other versions:
  5. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation, Yale University. [Downloadable!]
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  6. Daria Taglioni, 2002. "Exchange Rate Volatility as a Barrier to Trade: New Methodologies and Recent Evidence," Economie Internationale, CEPII research center, issue 1Q-2Q, pages 227-259. [Downloadable!]
  7. Richard E. Baldwin, 2006. "The euro's trade effect," Working Paper Series 594, European Central Bank. [Downloadable!]
  8. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July. [Downloadable!] (restricted)
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  9. Richard Baldwin & Frauke Skudelny & Daria Taglioni, 2005. "Trade effects of the euro - evidence from sectoral data," Working Paper Series 446, European Central Bank. [Downloadable!]
  10. Berger, Helge & Nitsch, Volker, 2008. "Zooming out: The trade effect of the euro in historical perspective," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1244-1260, December. [Downloadable!] (restricted)
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  11. Helge Berger & Volker Nitsch, 2008. "Gotcha! A Profile of Smuggling in International Trade," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Francesco Paolo Mongelli & Ettore Dorrucci & Itai Agur, 2005. "What does European institutional integration tell us about trade integration?," Occasional Paper Series 40, European Central Bank. [Downloadable!]
  13. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics. [Downloadable!]
    Other versions:
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