Multilateral Resistance and the Euro Effects on Trade Flows

Camilla Mastromarco (), Laura Serlenga () and Yongcheol Shin

Chapter Chapter 12 in Spatial Econometric Interaction Modelling, 2016, pp 253-278 from Springer

Abstract: Abstract Recently, an investigation of unobserved and time-varying multilateral resistance and omitted trade determinants has assumed a prominent role in order to precisely measure the Euro effects on trade. We implement two methodologies: the factor-based gravity model by Serlenga and Shin (The Euro Effect on Intra-EU Trade: Evidence from the Cross Sectionally Dependent Panel Gravity Models, Mimeo, University of York, 2013) and the spatial-based techniques by Behrens et al. (J Appl Econ 27:773–794, 2012), both of which allow trade flows and error terms to be cross-sectionally correlated. Applying these approaches to the dataset over 1960–2008 for 190 country-pairs of 14 EU and six non-EU OECD countries, we find that the Euro impact estimated by the factor-based model amounts to only 4–5 %, far less than the 20 % estimated by the spatial-based model. The cross-section dependency test results also confirm that the factor-based model is more appropriate in accommodating correlation between regressors, and unobserved individual and time effects. Overall we may conclude that the trade-creating effects of the Euro should be viewed in the proper historical and multilateral perspective rather than in terms of the formation of a monetary union as an isolated event.

Keywords: Multilateral resistance; The factor-based and the spatial-based panel gravity models; Cross-section dependence; The Euro effects on trade and integration; C33; F14 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-3-319-30196-9_12

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