A Union Divided? The euro and trade in the core and the periphery

Joseph Kopecky ()
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Joseph Kopecky: Department of Economics, Trinity College Dublin

No tep1625, Economic Papers from Trinity College Dublin, Economics Department

Abstract: Has the euro improved trade evenly across member states? This paper revisits the impact of the euro on trade, focusing on systematic heterogeneity between core and peripheral members. I develop a stylized conceptual framework showing that while the elimination of exchange-rate volatility should raise trade for all European Monetary Union (EMU) members, other forms of price convergence may generate asymmetric effects. Using bilateral trade data from 1960–2018, I estimate a gravity model with Poisson pseudo maximum likelihood (PPML) and apply a doubly robust inverse-propensity score weighting estimator. The results show that the average EMU effect masks substantial heterogeneity across member states. On average, euro membership increases trade by about 6%, with stronger gains, around 12%-for core country exports (to both core and periphery destinations) and within periphery exports. However, trade flows from the periphery to core members decline by an estimated 7%.

Keywords: Euro; Currency unions; Trade; Gravity (search for similar items in EconPapers)
JEL-codes: F10 F13 F45 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2025-10
New Economics Papers: this item is included in nep-eec, nep-int, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep1625

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