This paper reconsiders the trade effects of the euro, providing a decomposition into its effects on the extensive margin and intensive margin. Furthermore, it relates the more disaggregated estimates for 93 two-digit HS product groups to the elasticity of substitution, thereby testing a key hypothesis of recent trade theory. The estimates for the period 1996-2011 suggest a trade effect of the euro of some 28 percent, which has mainly materialized through the intensive margin. For several product groups, we find a negative net effect of the euro on the extensive margin, supporting anecdotal evidence that firms have consolidated their product varieties in response to the elimination of exchange rate variability. Finally, the disaggregated estimates are in line with recent trade theory, suggesting that a large elasticity of substitution dampens the effect of a trade cost reduction on the extensive margin and amplifies its effect on the intensive margin.
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:5472 |
| Date | January 2014 |
| Creators | Badinger, Harald, Türkcan, Kemal |
| Publisher | Wiley |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Article, PeerReviewed |
| Format | application/pdf |
| Relation | http://dx.doi.org/10.1111/roie.12094, http://onlinelibrary.wiley.com/, http://epub.wu.ac.at/5472/ |
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