EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations

19 Pages Posted: 7 Sep 2013

See all articles by Mariam Camarero

Mariam Camarero

Jaume I University - Department of Economics

Estrella Gomez-Herrera

European Commission Joint Research Center

Cecilio R. Tamarit

University of Valencia - Department of Applied Economics

Date Written: September 2013

Abstract

In this paper, we present evidence of the long‐run effect of the euro on trade for the twelve initial EMU countries for the period 1967–2008 from a double perspective. First, we pool all the bilateral combinations of trade flows among the EMU countries in a panel cointegration gravity specification. Second, we estimate a gravity equation for each of the EMU members vis‐à‐vis the other eleven partners. We apply panel cointegration techniques based on factor models that account for cross‐dependence and structural breaks. Whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra‐European trade, by isolating the individual countries, we assess which of the member countries have obtained a larger benefit from the euro. The results show that the euro has had a positive though small effect on trade. Belgium and Luxembourg, France and Italy are the countries more benefited from the introduction of the euro. The effects for exports to third countries are in general more moderate, and, with the exception of Greece, there is no evidence of diversion effects.

Suggested Citation

Camarero Olivas, María Amparo (Mariam) and Gomez-Herrera, Estrella and Tamarit Escalona, Cecilio R., EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations (September 2013). The World Economy, Vol. 36, Issue 9, pp. 1146-1164, 2013. Available at SSRN: https://ssrn.com/abstract=2321988 or http://dx.doi.org/10.1111/twec.12090

María Amparo (Mariam) Camarero Olivas (Contact Author)

Jaume I University - Department of Economics ( email )

Campus del Riu Sec.
E-12071 Castellon
Spain

Estrella Gomez-Herrera

European Commission Joint Research Center ( email )

1049
Belgium

Cecilio R. Tamarit Escalona

University of Valencia - Department of Applied Economics ( email )

4F04 Edificio Departamental Oriental
P.O. Box 22.006
Valencia, 33006
Spain
+34-963828349 (Phone)
+34-963828354 (Fax)

HOME PAGE: http://www.uv.ed/~tamac/

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