Euros and Zeros: The Common Currency Effect on Trade in New Goods

27 Pages Posted: 7 Jan 2007

See all articles by Richard E. Baldwin

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Virginia Di Nino

Graduate Institute of International and Development Studies (IHEID)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

This paper tests whether trade in new goods is partially responsible for the pro-trade effects of the euro and provides a measure of the size of the effect. It works with a very large data set (about 16 million observations) covering twenty countries at the most disaggregated level of trade data that is publicly available. Using predictions from a heterogeneous-firms trade model in a multi-country environment to structure our empirical model, we find that the euro had a positive impact on trade overall. Our findings provide supportive but not conclusive evidence for the new-goods hypothesis. We also determined the pro-trade effect of euro-usage on non-Euroland nations trading with euro-users. We confirmed the absence of trade diversion for non-Eurozone EU members with sizeable overall increase comparable to that of members.

Keywords: Heterogenous firms, Eurozone trade effects, Melitz model, extensive margin

JEL Classification: F12, F21, F33, F4

Suggested Citation

Baldwin, Richard E. and Di Nino, Virginia, Euros and Zeros: The Common Currency Effect on Trade in New Goods (December 2006). CEPR Discussion Paper No. 5973, Available at SSRN: https://ssrn.com/abstract=955328

Richard E. Baldwin (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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HOME PAGE: http://www.hei.unige.ch/~baldwin/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Virginia Di Nino

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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