Multilateral Resistance and Euro Effects on Trade Flows

Yongcheol Shin, Laura Serlenga, Camilla Mastromarco

Research output: Chapter in Book/Report/Conference proceedingChapter (peer-reviewed)peer-review


Recently, an investigation of unobserved and time-varying multilateral resistance
and omitted trade determinants has assumed a prominent role in order to
measure the Euro effects on trades precisely. We implement two methodologies: the factor-based gravity model by Serlenga and Shin (2013) and the spatial-based techniques by Behrens, Ertur and Kock (2012), both of which allow trade flows and error terms to be cross-sectionally correlated. Applying these approaches to the dataset over 1960-2008 for 190 country-pairs of 14 EU and 6 non-EU OECD countries, we find that the Euro impact estimated by the factor-based model amounts to 4-5% only, far less than 20% estimated by the spatial-based model. The cross section dependency test results also confirm that the factor-based model is more appropriate in accommodating correlation between regressors, and unobserved individual and time effects. Overall we may conclude that the trade-creating effects of the Euro should be viewed in the proper historical and multilateral perspective rather than in terms of the formation of a monetary union as an isolated event.
Original languageEnglish
Title of host publicationSpatial Econometric Interaction Modelling
EditorsRoberto Patuelli, Guiseppe Arbia
ISBN (Electronic)978-3-319-30196-9
Publication statusPublished - 2016

Publication series

NameAdvances in Spatial Science
PublisherSpringer International Publishing

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