arXiv 27 Jan 2026 · Econometrics
arXiv:2601.19664 · PDF · DOI · OpenAlex · Extracted main text
Two decades of research on the euro's trade effects have produced estimates ranging from 4% to 30%, with no consensus on the magnitude. We find evidence that this divergence may reflect genuine heterogeneity in the euro's trade effect across country pairs rather than methodological differences alone. Using Eurostat data on 15 EU countries (12 eurozone members plus Denmark, Sweden, and the UK as controls) from 1995-2015, we estimate that euro adoption increased bilateral trade by 29% on average (14.1% after fixed effects correction), but effects range from -12% to +79% across eurozone pairs. Core eurozone pairs (e.g., Germany-France, Germany-Netherlands) show large gains, while peripheral pairs involving Finland, Greece, and Portugal saw smaller or negative effects, with some negative estimates statistically significant and interpretable as trade diversion. Pre-euro trade intensity and GDP account for over 90% of feature importance in explaining this heterogeneity. Extending to EU28, we find evidence that crisis-era adopters (Slovakia, Estonia, Latvia) pull down naive estimates to 4.3%, but accounting for fixed effects recovers estimates of 13.4%, consistent with the EU15 fixed-effects baseline of 14.1%. Illustrative counterfactual analysis suggests non-eurozone members would have experienced varied effects: UK (+33%), Sweden (+22%), Denmark (+19%). The wide range of prior estimates appears to be largely a feature of the data, not a bug in the methods.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Gunnella, V., Lebastard, L., Lopez-Garcia, P., Serafini, R., and Zon… (2021) The impact of the euro on trade: Two decades into monetary union | 1.000 | 10 | 6 | 100% |
| 2 | Persson, T (2001) Currency unions and trade: How large is the treatment effect? | 1.000 | 5 | 5 | 100% |
| 3 | Saia, A (2017) Choosing the open sea: The cost to the UK of staying out of the euro | 0.928 | 4 | 4 | 100% |
| 4 | Anderson, J. and van Wincoop, E (2003) Gravity with gravitas: A solution to the border puzzle | 0.843 | 3 | 3 | 100% |
| 5 | Rose, A.K (2016) Why do estimates of the EMU effect on trade vary so much? | 0.843 | 3 | 3 | 100% |
| 6 | Santos Silva, J.M.C. and Tenreyro, S (2006) The log of gravity | 0.737 | 3 | 2 | 100% |
| 7 | Chernozhukov, V., Chetverikov, D., Demirer, M., Duflo, E., Hansen, C… (2018) Double/debiased machine learning for treatment and structural parameters | 0.644 | 2 | 2 | 100% |
| 8 | Chintrakarn, P (2008) Estimating the euro effects on trade with propensity score matching | 0.644 | 2 | 2 | 100% |
| 9 | Baier, S.L. and Bergstrand, J.H (2009) Estimating the effects of free trade agreements on international trade flows using matching econometrics | 0.585 | 3 | 1 | 100% |
| 10 | Oster, E (2019) Unobservable selection and coefficient stability: Theory and evidence | 0.511 | 2 | 2 | 50% |
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