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The Impact of the Euro on New Zealand’s Bilateral Trade with the European Union

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Abstract

Since 1990, the European Union (EU) is New Zealand’s second biggest trading partner after Australia. New Zealand’s exports to the EU are mainly in agricultural products, such as sheep-meat, butter, venison, kiwifruit, apples, wools, hides and skins. New Zealand, on the other hand, imports high-technological products from the EU, such as cars, aircraft, telephone equipment, etc. However, the introduction of the European single currency, the euro on January 1999 could signifi cantly impact business and/or trading relations between New Zealand and the EU because of the close trade relations between New Zealand and the EU. This paper examines whether the introduction of the euro resulted in structural changes on New Zealand import and export relations with the EU-15 member states. The research uses the Augmented Dickey-Fuller (ADF) unit root tests to test the order of integration of the import and export variables and whether all the variables are integrated in the same level, I(1). In addition, the Vector Autoregression (VAR) models and the Johansen maximum likelihood procedures are used to determine the cointegrating relations among the series in the import and export models. The results show instability in both import and export but the instability are more likely explained by the impact of the 1997 Asian Crisis than by the introduction of the euro.

Suggested Citation

  • Liu, Yi Yun & Gan, Christopher & Ward, Bert D., 2006. "The Impact of the Euro on New Zealand’s Bilateral Trade with the European Union," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(3), pages 329-354.
  • Handle: RePEc:ris:ecoint:0079
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    File URL: http://www.iei1946.it/RePEc/ccg/LIU%20ET%20AL%20329_354.pdf
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    References listed on IDEAS

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    1. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, April.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Dilip Dutta & Nasiruddin Ahmed, 2004. "An aggregate import demand function for India: a cointegration analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 607-613.
    4. Kevin C Cheng, 2004. "A Reexamination of Korea’s Trade Flows; What Has Changed and What Explains These Changes?," IMF Working Papers 04/145, International Monetary Fund.
    5. Sergio De Nardis & Claudio Vicarelli, 2003. "The Impact of the Euro on Trade: The (Early) Effect is Not So Large," Economics Working Papers 017, European Network of Economic Policy Research Institutes.
    6. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    7. repec:syd:wpaper:2001-3 is not listed on IDEAS
    8. Ronald McKinnon, 2002. "Optimum currency areas and the European experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 343-364, July.
    9. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
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    More about this item

    Keywords

    Euro; cointegration; general to specifi c modelling; Chow test;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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