The Impact of the Euro on the Quality of Trade: Evidence from the European Union

Tadashi Ito, Toshihiro Okubo

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper examines the effects of a common currency on the quality of traded goods. For this purpose, we construct a quality-based heterogeneous firm trade model to incorporate the formation of currency unions and the ensuing elimination of exchange rate volatility. Our main hypothesis is that a common currency enables low-quality (low marginal cost) firms to commence exporting to the common currency's member countries, which causes the average export price to fall. We empirically test this hypothesis for the euro and the eurozone using Harmonized System 8-digit traded product data for European Union countries.

Original languageEnglish
JournalManchester School
DOIs
Publication statusAccepted/In press - 2015

ASJC Scopus subject areas

  • Economics and Econometrics

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