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Measuring the Trade Effects of EMU

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Author Info

  • Hamid Faruqee

Abstract

This paper examines the impact of European Economic and Monetary Union (EMU) on trade within the euro area. Using panel data for 22 industrial countries, the analysis estimates the effect of the euro''s arrival on area-wide trade compared to bilateral trade flows between other industrial countries. Controlling for other influences according to the "gravity" model of trade, the panel analysis employs cointegration techniques to obtain reliable point estimates of EMU trade effects. Cross-country differences with respect to EMU trade gains and underlying factors accounting for these differences are also further explored.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/154.

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Length: 29
Date of creation: 01 Aug 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/154

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Related research

Keywords: Bilateral trade; trade gains; monetary union; area trade; cointegration; trade effects; statistics; trade flows; trading partners; industry trade; standard errors; equation; trade impact; trade integration; econometrics; free trade; international trade; partner countries; internal market; average trade; statistical inference; bilateral trade flows; statistic; trade patterns; trading partner; correlation; trade creation; estimation procedure; trade diversion; dynamic effects; trade agreements; free trade agreement; free trade agreements; dummy variable; trade agreement; linear time trend; surveys; income convergence; samples; economic integration; dynamic impact; transactions costs; dummy variables; competitive advantage; pattern of trade; time series; linear time; open economies; trade performance; trade theories; internal trade; standard deviation; instrumental variables; significance level; empirical framework; world economy; preliminary assessment; impact of trade; aggregate trends; survey; trade openness; finite sample; world trade; outlier; outliers; statistical inferences; external trade; global integration; number of regressors; member country; trade growth; trade model; logarithm; internal trade flows; terms of trade; trade creating;

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References

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  1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  2. Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003. "The currency union effect on trade: early evidence from EMU," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 315-356, October.
  3. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers, Department of Economics, Williams College 2000-03, Department of Economics, Williams College.
  4. Rose, Andrew K, 2003. "A Meta-Analysis of the Effect of Common Currencies on International Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4341, C.E.P.R. Discussion Papers.
  5. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
  6. Bayoumi, Tamim & Eichengreen, Barry, 1995. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1294, C.E.P.R. Discussion Papers.
  7. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  8. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers, University of Liverpool Management School 1999_04, University of Liverpool Management School.
  9. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  10. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
  11. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, American Economic Association, vol. 69(1), pages 106-16, March.
  12. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  13. Faruqee, Hamid, 1996. "Real exchange rates and the pattern of trade: comparative dynamics for north and south," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(2), pages 313-336, April.
  14. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  15. Lionel Fontagné & Michael Freudenberg, 1999. "Endogenous Symmetry of Shocks in a Monetary Union," Open Economies Review, Springer, Springer, vol. 10(3), pages 263-287, July.
  16. Jacob A. Frenkel, 1978. "International Reserves Under Alternative Exchange Rate Regimes and Aspects of The Economics of Managed Float," NBER Working Papers 0287, National Bureau of Economic Research, Inc.
  17. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  18. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 753-760, April.
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