The Propensity to Exports and the Membership in the Economic and Monetary Union of Central and Eastern European Countries: The Micro-Econometric Firm Level Analysis

Abstract

There are many studies aiming at estimation of aggregate trade effects of the euro adoption by the old EU countries, which are based on the gravity model. In contrast to the existing literature we investigate whether the adoption of the common currency increases the export activity of individual firms. In particular, we refer to the new strand in the trade theory, based on the Melitz (2003) model, in which propensity to export depends on productivity and costs of exporting. There are many empirical studies, based on firm level data, showing the relevance of the Melitz (2003) model. Most of those studies demonstrate that export performance positively depends on firms’ characteristics, but they do not take into account the impact of the common currency on the cost of exporting. There are only few studies analyzing implications of euro adoption for firms’ exports of “old EU” members. In our empirical paper we use the firm level data basis set up by the EBRD and the World Bank. Using the probit model we analyze whether the accession of Slovenia and Slovakia to the Eurozone did increase the firms’ propensity to export in those countries.