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A Union Divided? The euro and trade in the core and the periphery

Author

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  • Joseph Kopecky

    (Department of Economics, Trinity College Dublin)

Abstract

Has the euro improved trade evenly across member states? This paper revisits the impact of the euro on trade, focusing on systematic heterogeneity between core and peripheral members. I develop a stylized conceptual framework showing that while the elimination of exchange-rate volatility should raise trade for all European Monetary Union (EMU) members, other forms of price convergence may generate asymmetric effects. Using bilateral trade data from 1960–2018, I estimate a gravity model with Poisson pseudo maximum likelihood (PPML) and apply a doubly robust inverse-propensity score weighting estimator. The results show that the average EMU effect masks substantial heterogeneity across member states. On average, euro membership increases trade by about 6%, with stronger gains, around 12%-for core country exports (to both core and periphery destinations) and within periphery exports. However, trade flows from the periphery to core members decline by an estimated 7%.

Suggested Citation

  • Joseph Kopecky, 2025. "A Union Divided? The euro and trade in the core and the periphery," Trinity Economics Papers tep1625, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep1625
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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