Premium
EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations
Author(s) -
Camarero Mariam,
Gómez Estrella,
Tamarit Cecilio
Publication year - 2013
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12090
Subject(s) - cointegration , economics , gravity equation , gravity model of trade , international economics , panel data , perspective (graphical) , bilateral trade , econometrics , monetary economics , china , mathematics , political science , law , geometry
Abstract In this paper, we present evidence of the long‐run effect of the euro on trade for the twelve initial EMU countries for the period 1967–2008 from a double perspective. First, we pool all the bilateral combinations of trade flows among the EMU countries in a panel cointegration gravity specification. Second, we estimate a gravity equation for each of the EMU members vis‐à‐vis the other eleven partners. We apply panel cointegration techniques based on factor models that account for cross‐dependence and structural breaks. Whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra‐ E uropean trade, by isolating the individual countries, we assess which of the member countries have obtained a larger benefit from the euro. The results show that the euro has had a positive though small effect on trade. B elgium and L uxembourg, France and Italy are the countries more benefited from the introduction of the euro. The effects for exports to third countries are in general more moderate, and, with the exception of Greece, there is no evidence of diversion effects.