Trade Volume Effects of the Euro: Aggregate and Sector Estimates

The gravity model is used to estimate the trade volume effects of the creation of the European currency union. The euro is estimated to have raised the level of aggregate trade between euro countries in 1998-2002 compared to 1989-1997 by 15 per cent and the level of trade with outside countries by 8 per cent. The effect is clearly increasing over time. Estimates for one-digit SITC sectors yield a concentration of effects to highly processed manufactures, indicating that the spillover is caused by increasing vertical specialization across countries.-

Euro Effects on the Intensive and Extensive Margins of Trade

We estimate that the euro has increased trade within the eurozone by about 26 per cent and trade between the eurozone and outsiders by about 12 per cent on average for the years 2002-2005 compared to 1995-1998. The percentage increases were smaller for products that were exported every year during the sample period than for products that were not, indicating significant and substantial effects on the extensive margin of trade. The euro effects were concentrated to semi-finished and finished products, in particular to industries with highly processed products such as pharmaceuticals and machinery.

Turkey and the EU: Politics and Economics of Accession

This paper discusses political and economic aspects of Turkish accession. Under present rules, Turkey would have the greatest number of council votes within twenty years, and receive the largest budget transfer. Free migration may increase the Turkish immigrant population in Germany from 2 to 3.5 million in thirty years. Most of the economic effects will be felt by Turkey, particularly in agriculture. The main obstacles to accession are not economic, but political. Historical experience prevents Turkey from eliminating the decisive political role of the military, giving Kurds and other minorities cultural rights and upholding basic human rights.Turkey

Gravity estimation of the intensive and extensive margins of trade: An alternative procedure with alternative data

Helpman, Melitz and Rubinstein (2008) derive gravity equations to estimate effects of trade barriers on the intensive and extensive margins of trade. They exploit the frequency of zeros in aggregate bilateral trade data to identify effects on the extensive margin and to obtain controls for firm level heterogeneity and sample selection on the intensive margin. By using data on the number of bilaterally traded products we improve on identification and allow estimation of the extensive margin when data contain only positive trade flows. We also control for the pervasive presence of heteroscedasticity in trade data. The heterogeneity and selection biases are shown to be small and unimportant whereas the heteroscedasticity bias is large and important

Adverse Selection in Credit Markets and Infant Industry Protection

This paper considers the role for infant industry protection when credit markets suffer from adverse risk selection. We show that asymmetric information about firm-specific risk leads to under-funding of the infant industry in a competitive credit market. A small amount of infant industry protection is shown to be welfare improving, and the optimal infant industry tariff is derived. Finally, an alternative government policy of production subsidies is considered under the assumption that the government shares private knowledge with infant industry firms. We argue that a tariff may dominate production subsidies as an entry promoting devise in this context.

EC Members Fighting About Surplus : VERs, FDI and Japanese Cars

The distribution of consumer and producer surplus among EC members of three different trade regimes - free trade, a voluntary export restraint (VER) and a VER in conjunction with foreign direct investment (FDI) - are derived and compared within the framework of a Nash-Cournot duopoly model. Free trade and a VER are likely to be first and third best for countries without import competing production, while the opposite holds for countries with import competing production. A VER-cum-FDI regime is second best for both. If the producing countries are in majority and set the common VER, while the power to allow FDI remains under national control, the policy equilibrium is one of a VER with or without FDI. A VER-cum-FDI outcome is third best for the EC as a whole