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The effect of the single currency on exports: comparative firm-level evidence

Tibor Lalinsky () and Jaanika Meriküll
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Tibor Lalinsky: National Bank of Slovakia
Jaanika Meriküll: Eesti Pank

No WP 1/2019, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: We investigate how adopting the euro affects exports using firmlevel data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports to the euro area countries with exports to the non-euro area EU countries. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.

Keywords: international trade; common currency areas; euro adoption; transaction costs; Slovakia; Estonia; firm-level data (search for similar items in EconPapers)
JEL-codes: F14 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-int and nep-tra
Date: 2019-03
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1059

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