Re-visiting the Impact of the Euro on Trade Flows: New Evidence Using Gravity Equation with Poisson Count-Data Technique

This paper quantifies the most likely trade effects of the euro introduction using a panel data set of 29 European economies extended over the period 1994 to 2011. For this purpose, a gravity model of international trade is used. Following the recommendations of Santos Silva and Tenreyro (2006) paper [The log of gravity. Rev Econ Stat. 88 (4), 641-658], the gravity equation is estimated using Poisson pseudo-maximum-likelihood (PPML) technique. The main finding of this study is that the introduction of the euro has a small but statistically significant effect on export flows of European economies. The PPML estimates report this effect (euro effect) to be around 7%. This effect, although small, matches with the findings of the recent studies.