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What kind of region reaps the benefits of a currency union?

Augusto Cerqua (), Roberta Di Stefano () and Guido Pellegrini ()
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Roberta Di Stefano: Department of Methods and Models for Economics, Territory and Finance, Sapienza University of Rome

No 2/21, Working Papers from Sapienza University of Rome, DISS

Abstract: What is the economic impact of joining a currency union? Is this impact heterogeneous across regions? And how does it change in case of a recession? We answer these questions by investigating the economic impact of joining the euro area for the latecomers, i.e., the countries that adopted the euro after 2002. Di erently from previous literature, we use NUTS-2 regions as units of analysis. This novelty allows us to investigate the theoretical predictions of a currency union impact at a more appropriate geographi- cal level. Using a counterfactual approach based on the recently developed kernel balancing estimator, we estimate the overall as well as the disaggre- gated impact of joining the euro area. We find that the adoption of the euro brought about a small positive e ect, which was, however, dampened by the Great Recession. Individual regional estimates suggest heterogeneous returns with benefits accruing mostly to core regions.

Keywords: euro area; accession countries; regional data; kernel balancing estimator (search for similar items in EconPapers)
JEL-codes: C23 F33 R11 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-eec, nep-geo, nep-mon and nep-opm
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