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Does Monetary Integration Have an Effect EU\’s Trade Change During Economic Crises?

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  • Katarzyna Śledziewska
  • Bartosz Witkowski

Abstract

This paper contributes to the discussion about economic effects of monetary integration and the problem of model stability during economic crisis. The fundamental goal of this research is twofold: firstly, to investigate the effect of different stages of economic integration on export to EU and non-EU countries, from becoming a member of the European Union (EU) to the Eurozone (EZ). Secondly, to check whether the functional form of the model can be considered stable over time as in the meantime the world entered the crisis phase. For an empirical test a data set covering the period from 1994 to 2010 has been used. The standard factors of gravity models, such as the size of the markets of trade partners, GDP per capita of trade partners etc. have been tested in the log-linear specification of the gravity model. In order to control the effect of monetary integration, several dummy variables indicating the process of monetary integration were added. Positive effects of growing GDP and GDP per capita, as usual, are expected. What is also assumed is that participation in amonetary union does not enhance exports to the EU and Eurozone countries. To test for this hypothesis, and to exercise control over additional factors, a model based on panel data with the use of Hausman-Taylor method was estimated. Surprisingly, it was found out that even though the impact of joining the EU and ERM on export has been positive, joining the Eurozone has given the opposite result. It will also be demonstrated that some of the parameters could be considered stable in the long run, but this is not relevant to all of them. Keywords: international trade, monetary integration, gravity model.

Suggested Citation

  • Katarzyna Śledziewska & Bartosz Witkowski, 2012. "Does Monetary Integration Have an Effect EU\’s Trade Change During Economic Crises?," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 30.
    • Handle: RePEc:eko:ekoeko:30_45
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    References listed on IDEAS

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