Country size and the trade effects of the euro

In: Review of World Economics, Band 145, Heft 2, S. 207-223

Abstract

This paper investigates whether small countries gain relatively more than large countries from an 'expansion' of their market through the creation of a single currency. The introduction of the euro offers a particularly valuable source to test this hypothesis, which we motivate using the theoretical model by Casella of the year 1996. Our results from a panel data analysis, using both aggregate and disaggregated trade data, point to a statistically significant but quantitatively moderate small country bonus. On average, the euro has led to an improvement of the small euro area's relative export performance by 3–9%.