Investigating the Effects of Euro on Bilateral Trade: a Kernel Matching Approach

Fotopoulos, Georgios; Psallidas, Dionysios

doi:2009.24.4.661

Journal of Economic Integration 2009 December;24(4) :661-684.
DOI: https://doi.org/10.11130/jei.2009.24.4.661

Investigating the Effects of Euro on Bilateral Trade: a Kernel Matching Approach

Georgios Fotopoulos, Dionysios Psallidas

University of Peloponnese
University of Patras

ABSTRACT

The aim of this paper is to estimate the effects of the adoption of the Euro on the bilateral trade of European and OECD countries. Using the most recently available data and a more appropriate deflator of bilateral trade, this research tries to assess whether EMU countries trade more than they would have if they had not adopted the Euro. In doing so an augmented ‘difference in differences’ approach is used. The results obtained show that the adoption of the Euro increased trade significantly and that there is also no evidence of trade diversion effects.

JEL Classification: C14, F15, F33

Keywords: European Union | common currency | difference-in-differences estimation | trade creation | kernel matching

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