The Impact of the Euro on the Quality of Trade: Evidence from the European Union

22 Pages Posted: 6 Jun 2016

See all articles by Tadashi Ito

Tadashi Ito

Institute of Developing Economies

Toshihiro Okubo

Keio University

Date Written: July 2016

Abstract

This paper examines the effects of a common currency on the quality of traded goods. For this purpose, we construct a quality‐based heterogeneous firm trade model to incorporate the formation of currency unions and the ensuing elimination of exchange rate volatility. Our main hypothesis is that a common currency enables low‐quality (low marginal cost) firms to commence exporting to the common currency's member countries, which causes the average export price to fall. We empirically test this hypothesis for the euro and the eurozone using Harmonized System 8‐digit traded product data for European Union countries.

Suggested Citation

Ito, Tadashi and Okubo, Toshihiro, The Impact of the Euro on the Quality of Trade: Evidence from the European Union (July 2016). The Manchester School, Vol. 84, Issue 4, pp. 506-527, 2016. Available at SSRN: https://ssrn.com/abstract=2790390 or http://dx.doi.org/10.1111/manc.12112

Tadashi Ito (Contact Author)

Institute of Developing Economies ( email )

3-2-2 Wakaba, Mihama-ku
Chiba, 261-8545
Japan

HOME PAGE: http://www.ide.go.jp/English/

Toshihiro Okubo

Keio University ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

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