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Zooming Out: The Trade Effect of the EURO in Historical Perspective

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  • Berger, Helge
  • Nitsch, Volker

Abstract

In 1999, eleven European countries formed the Economic and Monetary Union (EMU); they abandoned their national currencies and adopted a new common currency, the euro. Several recent papers argue that the introduction of the euro has led (by itself) to a sizable and statistically significant increase in trade between the member countries of EMU. In this paper, we put the trade effect of the euro in historical perspective. We argue that the creation of the EMU was a continuation (or culmination) of a series of previous policy changes that have led over the last five decades to greater economic integration among the countries that now constitute EMU. Using a data set that includes 22 industrial countries from 1948 to 2003, we find strong evidence of a gradual increase in trade intensity between European countries. Once we control for this trend in trade integration, the euro?s impact on trade disappears. Moreover, a significant part of the trend in European trade integration is explained by measurable policy changes. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2005/5.

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Date of creation: 2005
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Handle: RePEc:zbw:fubsbe:20055

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Keywords: monetary union; currency; euro; trade; European integration;

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References

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  1. Maurice J.G. Bun & Franc J.G.M. Klaassen, 2002. "Has the Euro increased Trade?," Tinbergen Institute Discussion Papers 02-108/2, Tinbergen Institute.
  2. Sergio Nardis, 2004. "Currency unions and trade: The special case of EMU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 140(3), pages 625-649, September.
  3. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  4. Glick, Reuven & Rose, Andrew K, 2001. "Does a Currency Union Affect Trade? The Time Series Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2891, C.E.P.R. Discussion Papers.
  5. Berger, Helge & Nitsch, Volker, 2008. "Zooming out: The trade effect of the euro in historical perspective," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(8), pages 1244-1260, December.
  6. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 653-79, August.
  7. Maurice J.G. Bun & Franc J.G.M. Klaassen, 2002. "Has the Euro increased Trade?," Tinbergen Institute Discussion Papers 02-108/2, Tinbergen Institute.
  8. Flam, Harry & Nordström, Håkan, 2006. "Trade Volume Effects of the Euro: Aggregate and Sector Estimates," Seminar Papers, Stockholm University, Institute for International Economic Studies 746, Stockholm University, Institute for International Economic Studies.
  9. Maurice J. G. Bun & Franc J. G. M. Klaassen, 2007. "The Euro Effect on Trade is not as Large as Commonly Thought," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(4), pages 473-496, 08.
  10. Nitsch, Volker, 2005. "Currency union entries and trade," Discussion Papers 2005/9, Free University Berlin, School of Business & Economics.
  11. Alejandro Micco & Ernesto Stein & Guillermo OrdoÃ’ez, 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.
  12. Sergio Nardis & Claudio Vicarelli, 2003. "Currency unions and trade: The special case of EMU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 139(4), pages 625-649, December.
  13. 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.
  14. Baldwin, Richard E. & Skudelny, Frauke & Taglioni, Daria, 2005. "Trade effects of the euro: evidence from sectoral data," Working Paper Series, European Central Bank 0446, European Central Bank.
  15. Hamid Faruqee, 2004. "Measuring the Trade Effects of EMU," IMF Working Papers 04/154, International Monetary Fund.
  16. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 359-383, December.
  17. 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.
  18. José De Sousa & Julie Lochard, 2004. "The currency union effect on trade and the FDI channel," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) j04111, Université Panthéon-Sorbonne (Paris 1).
  19. David Barr & Francis Breedon & David Miles, 2003. "Life on the outside: economic conditions and prospects outside euroland," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 573-613, October.
  20. 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.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Scene dalla vita di provincia: prefazione
    by Alberto Bagnai in Goofynomics on 2013-06-27 08:04:00
  2. The Euro at Ten: Why Do Effects on Trade Among Members Fall Short of Historical Estimates in Smaller Monetary Unions?
    by ? in Jeff Frankels Weblog on 2008-12-25 05:14:34
  3. The Euro at Ten: Why Do Effects on Trade Among Members Fall Short of Historical Estimates in Smaller Monetary Unions?
    by jfrankel in Jeff Frankels Weblog on 2008-12-25 05:14:34
  4. Postfazione a Europa Kaputt di A.M. Rinaldi
    by Alberto Bagnai in Goofynomics on 2013-06-25 12:06:00
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