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Euros and Zeros: The Common Currency Effect on Trade in New Goods

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  • Baldwin, Richard
  • Di Nino, Virginia

Abstract

This paper tests whether trade in new goods is partially responsible for the pro-trade effects of the euro and provides a measure of the size of the effect. It works with a very large data set (about 16 million observations) covering twenty countries at the most disaggregated level of trade data that is publicly available. Using predictions from a heterogeneous-firms trade model in a multi-country environment to structure our empirical model, we find that the euro had a positive impact on trade overall. Our findings provide supportive but not conclusive evidence for the new-goods hypothesis. We also determined the pro-trade effect of euro-usage on non-Euroland nations trading with euro-users. We confirmed the absence of trade diversion for non-Eurozone EU members with sizeable overall increase comparable to that of members.

Suggested Citation

  • Baldwin, Richard & Di Nino, Virginia, 2006. "Euros and Zeros: The Common Currency Effect on Trade in New Goods," CEPR Discussion Papers 5973, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5973
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    More about this item

    Keywords

    Eurozone trade effects; extensive margin; heterogenous firms; Melitz model;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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