Working Papers, Department of Economics, Lund University
The Euro Effect on Bystanders
() and Karin Olofsdotter
Abstract: This paper investigates trade effects of the euro focusing
on the impact on bystanders. A common currency is expected to lower both
variable and fixed trade costs, inducing increased trade flows between
currency-union members on both intensive and extensive margins of trade.
While this trade-creating effect has gained attention in recent work using
firm-level data, few studies have looked on the possible trade-diverting
effect for firms remaining outside. In this paper, we use data for Swedish
manufacturing firms covering the 1997-2006 period in order to assess the
potential trade-diverting effects of the euro on Swedish exports. We
consider variations in the impact of the euro taking both firm, industry
and export-market characteristics into account. Our results suggest that
there are some trade-diverting effects on the intensive margin but that
these negative effects of the euro on trade flows are asymmetric and only
valid for core markets within the Eurozone.
Keywords: euro; trade diversion; exports; heterogeneous firms; (follow links to similar papers)
JEL-Codes: F10; (follow links to similar papers)
23 pages, September 12, 2014
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