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

Richard Baldwin and Virginia Di Nino

No 5973, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: F12 F21 F33 F4 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-cba, nep-eec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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Related works:
Working Paper: Euros and zeros: The common currency effect on trade in new goods (2006)
Working Paper: Euros and Zeros: The Common Currency Effect on Trade in New Goods (2006)
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