Trade Effects of the Euro: Evidence from Sectoral Data

By Richard E. Baldwin, Frauke Skudelny, Daria Taglioni. Social Science Research Network, 2005

182 citations recorded by the source corpus.

This paper contributes to the literature on the impact of EMU on trade, adding two new elements. First, we propose a theoretical model for explaining how the euro could have increased trade by the large amounts found in the empirical literature. Second, we propose a sectoral dataset to test the insights from the theory. Our theoretical model shows that in a monopolistic competition set-up, the effect of exchange rate uncertainty on trade has nonlinear features, suggesting that EMU and a standard measure for exchange rate uncertainty should be jointly significant. Our empirical results confirm this finding, with a trade creating effect between 108 and 140% in a pooled regression, and between 54 to 88% when sectors are estimated individually. Importantly, we find evidence for a trade creating effect also for trade with third countries. JEL Classification: F12, C33, E0

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/18b45ab6539f08d191c8cc974e17eb5d4eb9200b

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Citations in the corpus

External Imbalances in the Euro Area (2012, unknown): “However, the trade literature has often focused on explaining the evolution of intra-euro area trade (Rose, 2000; Micco et al., 2003; Schmitz and von Hagen, 2009; Baldwin et al., 2005; Flam and Nordstrom, 2006b).”
Trade effects of monetary agreements: Evidence for OECD countries (2008, background): “2 Specifically, the effect of the euro on trade has been analysed in several papers (see, Rose and van Wincoop, 2001; Bun and Klaassen, 2002; Micco, Stein and Ordoñez, 2003; De Nardis and Vicarelli, 2003; Faruqee, 2004; Baldwin, Skudelny, and Taglioni 2005).”
External imbalances in the eurozone (2013, unknown): “However, the trade literature has often focused on explaining the evolution of intra-eurozone trade (Rose, 2000; Micco et al., 2003; Schmitz and von Hagen, 2009; Baldwin et al., 2005; Flam and Nordstrom, 2006b).”
Currency unions in prospect and retrospect (2010, unknown): “Subsequent work on the euro effect, including Bun & Klaasen (2002, 2007), Flam & Nordstrom (2003, 2006), Baldwin & Taglione (2006), Baldwin et al. (2005), Gil-Pareja et al. (2008), and Baldwin (2006), among many others, have addressed various specification issues in Micco et al. (2003) (e.g., using…”