The Euro Effect on Trade is Not as Large as Commonly Thought

Bun, Maurice J. G.; Klaassen, Franc

doi:10.2139/ssrn.603801

Download This Paper

Open PDF in Browser

Add Paper to My Library

The Euro Effect on Trade is Not as Large as Commonly Thought

Tinbergen Institute Discussion Papers No. 2003-086/2

20 Pages Posted: 15 Oct 2004

See all articles by Maurice J. G. Bun

Maurice J. G. Bun

University of Amsterdam (UVA) - Department of Quantitative Economics; Tinbergen Institute

Franc Klaassen

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Tinbergen Institute

Date Written: October 17, 2003

Abstract

Existing studies on the impact of the euro on goods trade report increments between 5% and 40%. These estimates are based on standard panel gravity models for the level of trade. We show that the residuals from these models exhibit upwards trends over time for the euro countries, and that this leads to an upward bias in the estimated euro effect. To correct for that, we extend the standard model by including a time trend that may have different effects across country-pairs. This shrinks the estimated euro impact to 3%.

Keywords: currency union, dynamic OLS, EMU, robust standard errors, time trend

JEL Classification: C23, F15, F33

Suggested Citation: Suggested Citation

Bun, Maurice J. G. and Klaassen, Franc, The Euro Effect on Trade is Not as Large as Commonly Thought (October 17, 2003). Tinbergen Institute Discussion Papers No. 2003-086/2, Available at SSRN: https://ssrn.com/abstract=603801 or http://dx.doi.org/10.2139/ssrn.603801