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Bi- and Unilateral trade effects of joining the Euro

Mario Larch (), Joschka Wanner and Yoto Yotov

Economics Letters, 2018, vol. 171, issue C, 230-234

Abstract: We propose a simple theoretically consistent adjustment for structural gravity estimations of the EMU impact on international trade. Our methods result in two contributions to the related literature. First, we show that proper control for intra-national trade flows leads to larger, positive, and statistically significant bilateral EMU effects. The intuition is that joining the EMU promotes trade among member countries at the expense of trade diversion from domestic sales. Second, the introduction of intra-national trade flows enables us to identify Unilateral effects of joining the Euro between members and non-member countries. The unilateral effects are also positive, sizable and statistically significant.

Keywords: Currency unions; Euro effects; EMU; Unilateral EMU effect; Structural gravity models (search for similar items in EconPapers)
JEL-codes: F14 F15 F33 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:230-234