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Currency unions and trade: The special case of EMU

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Abstract

In this paper, the impact of the adoption of the euro on the commercial transactions of EMU countries is investigated. It seeks to disentangle the effects of eliminating exchange rate volatility — and those of other policy factors that promote integration — from the influence of the emergence of the European currency union. Since EMU is a relatively new phenomenon, a panel estimation of the gravity equation in a dynamic framework is used in order to capture effects like trade persistence. The main finding is that the adoption of the euro has had a positive but not an exorbitant impact on bilateral trade between European countries (ranging between 9 and 10 per cent). The impact is much lower than that shown in the recent literature on a larger and heterogeneous set of countries. One reason for this divergence seems to be that the euro was adopted after decades of integration policies had already worked through in Europe. JEL no. F4, F15, C230

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Authors and Affiliations

  1. ISAE, Institute for Studies and Economic Analyses, Rome

    Sergio de Nardis & Vicarelli Claudio

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  1. Sergio de Nardis
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  2. Vicarelli Claudio
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Correspondence to Sergio de Nardis.

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de Nardis, S., Vicarelli, C. Currency unions and trade: The special case of EMU. Review of World Economics 139, 625–649 (2003). https://doi.org/10.1007/BF02653107

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