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Study on the Impact of the Euro on Trade and Foreign Direct Investment

  • Richard Baldwin
  • Virginia DiNino
  • Lionel Fontagn�
  • Roberto A. De Santis
  • Daria Taglioni

The introduction of the euro was the world's largest economic ‘experiment.' This experiment opens the door to a major advance in our understanding of how a common currency affects economic activity. When it comes to the euro's trade effects the first contribution of this report is to refine “the numberâ€. Using the latest data and best empirical methodology, we confirm the received wisdom that the euro has promoted trade significantly, with the aggregate impact being in the range of 5% or so. The second main contribution of this report was to advance and refine our understanding of exact how the euro was boosting trade. The euro boosted trade inside the Eurozone since it lowered the relative price of traded goods coming from the Eurozone. The second main channel is the newly-trade goods channel. The third main contribution of the report concerns the euro's pro-FDI effects.

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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 321.

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Length: 141 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:euf:ecopap:0321
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