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Country size and the trade effects of the euro

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Badinger, Harald; Breuss, Fritz

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Abstract This paper investigates whether small countries gain relatively more than large countries from an 'expansion' of their market through the creation of a single currency. The introduction of the euro offers a particularly valuable source to test this hypothesis, which we motivate using the theoretical model by Casella of the year 1996. Our results from a panel data analysis, using both aggregate and disaggregated trade data, point to a statistically significant but quantitatively moderate small country bonus. On average, the euro has led to an improvement of the small euro area’s relative export performance by 3–9%.
Keywords Euro
Classification Political Economy; Economic Sectors
Free Keywords Country size; Trade; C33; F12; F15
Document language English
Publication Year 2009
Page/Pages p. 207-223
Journal Review of World Economics, 145 (2009) 2
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)