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

Author Info

  • Helge Berger
  • Volker Nitsch

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1435.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1435
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Keywords: monetary union; currency; euro; trade; European integration;

Other versions of this item:

Find related papers by JEL classification:
  • F02 - International Economics - - General - - - International Economic Order and Integration
  • F15 - International Economics - - Trade - - - Economic Integration
  • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  1. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  2. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  3. Sergio Nardis & Claudio Vicarelli, 2003. "Currency unions and trade: The special case of EMU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(4), pages 625-649, December.
  4. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
  5. José De Sousa & Julie Lochard, 2004. "The currency union effect on trade and the FDI channel," Cahiers de la Maison des Sciences Economiques j04111, Université Panthéon-Sorbonne (Paris 1).
  6. Sergio Nardis, 2004. "Currency unions and trade: The special case of EMU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(3), pages 625-649, September.
  7. Nitsch, Volker, 2005. "Currency union entries and trade," Discussion Papers 2005/9, Free University Berlin, School of Business & Economics.
  8. 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.
  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. Glick, Reuven & Rose, Andrew K, 2001. "Does a Currency Union Affect Trade? The Time Series Evidence," CEPR Discussion Papers 2891, C.E.P.R. Discussion Papers.
  11. Michael W. Klein & Jay C. Shambaugh, 2004. "Fixed Exchange Rates and Trade," NBER Working Papers 10696, National Bureau of Economic Research, Inc.
  12. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
  13. repec:dgr:uvatin:2002108 is not listed on IDEAS
  14. 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, 04.
  15. David Barr & Francis Breedon & David Miles, 2003. "Life on the outside: economic conditions and prospects outside euroland," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 573-613, October.
  16. 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.
  17. Baldwin, Richard E. & Skudelny, Frauke & Taglioni, Daria, 2005. "Trade effects of the euro: evidence from sectoral data," Working Paper Series 0446, European Central Bank.
  18. Hamid Faruqee, 2004. "Measuring the Trade Effects of EMU," IMF Working Papers 04/154, International Monetary Fund.
  19. repec:dgr:uvatin:20020108 is not listed on IDEAS
  20. Flam, Harry & Nordström, Håkan, 2006. "Trade Volume Effects of the Euro: Aggregate and Sector Estimates," Seminar Papers 746, Stockholm University, Institute for International Economic Studies.
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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
  5. Smoke sales
    by Alberto Bagnai in Goofynomics on 2013-09-10 09:18:00
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