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Has the Euro paid off? A study of the trade-induced welfare effects of the EMU

Author

Listed:
  • Silviano Esteve-Pérez

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain))

  • Salvador Gil-Pareja

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain))

  • Rafael Llorca-Vivero

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain))

  • Jordi Paniagua

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain))

Abstract

This paper aims to provide policy-relevant insights into the Euro effect. Relying on partial equilibrium estimates using a new dataset that comprises bilateral international and intranational trade flows of 69 countries during the period 1986-2016, we estimate a general equilibrium gravity model that allows us to quantify the welfare effect of the Euro as well as its impact on consumer prices and producer prices. The results of three counterfactual experiments indicate that the Euro has been successful at increasing welfare for Economic and Monetary Union (EMU) and non-EMU member countries. Our results suggest that a two-speed Euro design would have further increased welfare, albeit its distributional effects within countries, i.e., for consumers and producers. The growth effects of the Euro are mainly driven by trade creation outside the EMU, questioning the cohesiveness of the Euro as an optimum currency area.

Suggested Citation

  • Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Has the Euro paid off? A study of the trade-induced welfare effects of the EMU," Working Papers 2103, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:2103
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    Keywords

    Euro; trade; welfare; structural gravity; general equilibrium;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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