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Choosing the open sea: The cost to the UK of staying out of the euro

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  • Saia, Alessandro

Abstract

In this paper we provide an estimate of the trade flows that there would have been between the UK and its main trading partners if the UK had joined the euro. As an alternative approach to the standard log-linear gravity equation, we employ the synthetic control method. We show that the aggregate trade flows between Britain and eurozone members would have been 16% higher if the UK had adopted the euro. We also provide an estimate of the (hypothetical) euro's effect on trade flows between the UK and non-euro countries. Our results suggest that the adoption of the European currency would also have led to a substantial increase in British trade flows with non-euro members. Finally, we provide a new estimate of the euro's trade impact for euro members. Our results suggest that the adoption of the single currency led to an increase in intra-European trade flows of between 19% and 55%.

Suggested Citation

  • Saia, Alessandro, 2017. "Choosing the open sea: The cost to the UK of staying out of the euro," Journal of International Economics, Elsevier, vol. 108(C), pages 82-98.
    • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:82-98
    DOI: 10.1016/j.jinteco.2017.06.001
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    More about this item

    Keywords

    Euro trade effect; UK; Synthetic control method;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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