The euro impact on trade: long run evidence with structural breaks
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Universidad de Granada. Departamento de Teoría e Historia Económica
Gravity modelsTradePanel cointegrationCommon factorsStructural breaksCross-section dependence
Camarero, M.; Gómez-Herrera, E.; Tamarit, C. The euro impact on trade: long run evidence with structural breaks. Universidad de Granada. Departamento de Teoría e Historia Económica (2012). (The Papers; 10/27). [http://hdl.handle.net/10481/31580]
SponsorshipFinancing from Spanish MICINN [ECO2011-30260-C03-01, ECO2008-05908-C02-01 and 02/ECON and SEJ2007-62081 (E. Gómez)]. M. Camarero and C. Tamarit are members of INTECO research group funded by Generalitat Valenciana, project PROMETEO/2009/098.
In this paper we present new evidence on the euro effect on trade. We use a data set containing all bilateral combinations in a panel of 26 OECD countries during the period 1967-2008. From a methodological point of view, we implement a new generation of tests that allow solving some of the problems derived from the non-stationary nature of the data. To this aim we apply panel tests that account for the presence of cross-section dependence as well as discontinuities in the non-stationary panel data. We test for cointegration between the variables using panel cointegration tests, especially the ones proposed by Banerjee and Carrióni- Silvestre (2010). We also efficiently estimate the long-run relationships using the CUP-BC and CUP-FM estimators proposed in Bai et al. (2009). We argue that, after controlling for cross-section dependence and deterministic trends and breaks in trade integration, the euro appears to generate lower trade effects than predicted in previous studies.