Trade Volume Effects of the Euro : Aggregate and Sector Estimates

Abstract

The gravity model is used to estimate the trade volume effects of the creation of the European currency union. The euro is estimated to have raised the level of aggregate trade between euro countries in 1998-2002 compared to 1989-1997 by 15 per cent and the level of trade with outside countries by 8 per cent. The effect is clearly increasing over time. Estimates for one-digit SITC sectors yield a concentration of effects to highly processed manufactures, indicating that the spillover is caused by increasing vertical specialization across countries.

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