Abstract
In this paper we estimate the trade effects of the euro adoption in Central European countries using a modified gravity model. In particular, we analyze the ex post implications of accession of Slovenia and Slovakia to the Eurozone. We employ a gravity model that controls for an extended set of trade theory and policy variables. Trade theory variables include both the country size and factor proportion variables. Trade policy variables include the membership in GATT/WTO, CEFTA, OECD, EU and Europe Agreements. The gravity model is estimated using the panel data approach on a sample of CEE countries trading with the rest of the world during the period 1992-2009 using the fixed effects, random effects and Hausman-Taylor estimators. It seems that elimination of exchange rate volatility resulted in trade expansion for the CEE countries but the accession to the Eurozone did not have any significant effects on exports of Slovakia and Slovenia.
Highlights
The impact of the adoption of a common currency on international trade flows has been one of the most hotly debated issues in international econom-According to the recent empirical studies, the trade among the members of the Economic and Monetary Union (EMU) has grown on average by 10–15 % due to the use of a common currency and there was an increase in trade with the non-member states
We test empirically the hypothesis that the accession to the Eurozone of two new EU member countries: Slovakia and Slovenia had a similar effect on trade as in the case of the Eurozone founding members
The main goal of this paper was to investigate the ex post trade effects of the euro adoption for two Central European countries: Slovakia and Slovenia using a modified gravity model that allows for incomplete specialization in production and controls for an extended set of trade theory and policy variables
Summary
According to the recent empirical studies, the trade among the members of the EMU has grown on average by 10–15 % due to the use of a common currency and there was an increase in trade with the non-member states. These studies did not take into account the latest EMU enlargements and the impact of 2008–2009 world economic crisis. The main aim of this paper is to evaluate the ex post effects of two new EU member countries’ (Slovakia and Slovenia) accession to the European Economic and Monetary Union (EMU) on their exports. It should be kept in mind that the effect of the accession to the already existing monetary union may be different from the effect of the Eurozone foundation by developed old EU members
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