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Euro's influence upon trade: Rose effect versus border effect

  • Cafiso, Gianluca

This paper assesses the Euro’s influence upon European trade by estimating two different indicators. The first is the so-called “Rose Effect”, while the second is the “Border Effect”. The former measures how much a country within a currency union trades more with its partners than with non-member countries, the latter measures the integration of a country with its trade partners. This study of the Euro’s influence by means of the Border Effect is a novelty in the literature, it reveals that the Euro’s influence upon trade is not so clear as papers focused only on the Rose Effect claim. This casts doubts about the consequences of the Euro introduction for the European Single Market. Both indicators are estimated by means of a gravity model for bilateral trade flows using a panel of manufacture exports among twenty-four OECD countries. JEL Classification: F10, F14, F15

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Paper provided by European Central Bank in its series Working Paper Series with number 0941.

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Date of creation: Sep 2008
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Handle: RePEc:ecb:ecbwps:20080941
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  16. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
  17. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
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