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When, how fast and by how much do trade costs change in the euro area?

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  • Weber, Henning
  • Herwartz, Helmut

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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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2008/18.

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Date of creation: 2008
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Handle: RePEc:zbw:fubsbe:200818

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  1. Berger, Helge & Nitsch, Volker, 2005. "Zooming Out: The Trade Effect of the EURO in Historical Perspective," Discussion Papers 2005/5, Free University Berlin, School of Business & Economics.
  2. Helmut Herwartz & Henning Weber, 2007. "Exchange Rate Uncertainty and Trade Growth - A Comparison of Linear and Nonlinear (Forecasting) Models," SFB 649 Discussion Papers SFB649DP2007-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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  13. Daria Taglioni, 2002. "Exchange Rate Volatility as a Barrier to Trade: New Methodologies and Recent Evidence," Economie Internationale, CEPII research center, CEPII research center, issue 89-90, pages 227-259.
  14. Baldwin, Richard E., 2006. "The euro’s trade effects," Working Paper Series, European Central Bank 0594, European Central Bank.
  15. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  16. Sergio de Nardis & Claudio Vicarelli, 2003. "The Impact of Euro on Trade: The (Early) Effect is not so Large," ISAE Working Papers, ISTAT - Italian National Institute of Statistics - (Rome, ITALY) 31, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  17. Berger, Helge & Nitsch, Volker, 2008. "Gotcha!: a profile of smuggling in international trade," Discussion Papers 2008/6, Free University Berlin, School of Business & Economics.
  18. 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.
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