Abstract
Many estimates of the effect of the common currency on trade have been made, although a clear answer has yet to be given. This work analyses the trade effect of the euro by providing a twofold contribution. First, one of the main stylised facts that has emerged from the recent literature is that trade flows in gross terms can differ substantially from those measured in value added terms. Accordingly, we focus on the structure of global value chains rather than conventional gross trade. To this aim, we provide an estimate of the value added trade flows that would have existed between Italy and its main trading partners if Italy had not joined the monetary union and show how, and to what extent, international production sharing has been affected. Second, we use a methodology that is different from traditional, parametric ones. Specifically, we apply the synthetic control method to construct appropriate counterfactuals and estimate the causal impact of the euro. Our empirical analysis provides a relevant case for considering value added in addition to gross trade since it shows that the euro facilitated the forward integration of Italian exports, whereas it slowed down backward integration. Overall, these results suggest that the euro had an impact on Italian global value chain participation by altering value added flows across member as well as non-member states, with great heterogeneity in the results across value added trade components and sectors.
Highlights
The development of global value chains and euro area have notably affected intraregional trade in Europe and European economies integration both within and outside the region
This paper provides an assessment of the consequences on Italian trade in value added flows of joining the Economic and Monetary Union (EMU)
Within the Euro area countries, we focus on Italy, which is an ideal case study for several reasons
Summary
The development of global value chains and euro area have notably affected intraregional trade in Europe and European economies integration both within and outside the region. This paper provides an assessment of the consequences on Italian trade in value added flows of joining the Economic and Monetary Union (EMU). There is renewed interest in the impact of currency unions. The issue of the adoption of the euro and its economic consequences has been—and continues to be—at the centre of both the academic and political debate. The introduction of the euro is expected to affect trade with a positive effect because currency conversion costs and exchange rate uncertainty with other euro members are eliminated. A large body of applied literature on international trade has been devoted to assessing the impact of the adoption of the euro on trade: estimates vary widely across studies and often have ambiguous results (see the survey by Baldwin et al 2008, and more recently Rose 2017, and Polák 2018)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
