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Euro usage in international trade amidst threats to multilateralism: evidence from Malawian imports

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  • Angella Faith Montfaucon

    (World Bank
    Yokohama National University)

Abstract

The European Union (EU) is both a supporter and a symbol of multilateralism in international trade. The growth in the international role of the euro may ease the spillover concerns that a dollar dominated global economy brings. This paper assesses the effect of possible “threats” to multilateralism on the euro as a currency of invoicing in trade, using tariffs and EU (and euro area) membership as symbols of that multilateralism. Utilizing rarely available information on import duty and currency of invoicing from transaction-level data of Malawian imports, we estimate effects on the share of the euro in producer and vehicle currency pricing in EU and non-EU products. Our approach uses a fractional response model and a multinomial logit model. The results reveal that euro invoicing by eurozone countries is decreased by higher tariffs in the destination country, and increased by higher market share and a longer stay in the currency union. On the other hand, non-EU countries use the euro as a vehicle currency when faced with volatility and this invoicing share is higher with higher membership size of the EU. Thus, protectionist trade policies and decreases in country membership of the EU, are likely stifle internationalization of the euro.

Suggested Citation

  • Angella Faith Montfaucon, 2022. "Euro usage in international trade amidst threats to multilateralism: evidence from Malawian imports," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(2), pages 485-507, May.
  • Handle: RePEc:kap:empiri:v:49:y:2022:i:2:d:10.1007_s10663-021-09523-8
    DOI: 10.1007/s10663-021-09523-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro; Euro area; Invoicing currency; Tariff; Market share; European Union;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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