16 Pages Posted: 29 Oct 2002
Date Written: October 10, 2002
A major economic reason for the introduction of the euro was its supposedly positive effect on intra-EMU trade. Existing studies examine this suspicion indirectly using non-EMU data and report ambiguous results. We estimate the euro-effect directly from data that include EMU observations. Using a dynamic panel model for annual bilateral exports, we find that the euro has significantly increased trade, with an effect of 4% in the first year and cumulating to around 40% in the long-run. These estimates can be useful in the debates on whether to join the euro in countries such as the U.K.
Keywords: currency union, dynamic panel data model, EMU, exports, imperfect substitutes model
JEL Classification: C23, F15, F33
Suggested Citation: Suggested Citation