Monday, January 5, 2009

10 years of the Euro: Part III. Two notes

In two footnotes to these two posts on the Euro (Post I and Post II),

(1) A recent article by Maurice J.G. Bun and Franc J.G.M. Klaassen, titled "The Euro Effect on Trade is not as Large as Commonly Thought", published in the Oxford Bulletin of Economics and Statistics, Vol. 69, Issue 4, pp. 473-496, August 2007 provides an even more damming estimate of the poor Euro performance as trade-facilitation currency union:
"Existing studies on the impact of the euro on goods trade report increments between 5% and 40%. These estimates are based on standard panel gravity models for the level of trade. We show that the residuals from these models exhibit upwards trends over time for the euro countries, and that this leads to an upward bias in the estimated euro effect. To correct for that, we extend the standard model by including a time trend that may have different effects across country-pairs. This shrinks the estimated euro impact to 3%."
... and this is from two Dutch academics, not some 'Euro-skeptic' Americans or Brits... Ouch...

(2) The same issue of the Oxford Bulletin of Economics contained another article - previously published by the Austrian Central Bank - by Harald Badinger from the Europainstitut/ Department of Economics of Wirtschaftsuniversität Wien, titled "Has the EU’s Single Market Programme fostered competition? Testing for a decrease in markup ratios in EU industries". This research showed that using panel data covering 10 EU Member States over the period 1981 to 1999, for manufacturing, construction, and services, as well as for 18 detailed industries, the EU’s Single Market Programme has led to:
  • an increase in competition in the aggregate manufacturing, and – less robustly – for construction;
  • a decrease in competition in most service industries since the early 1990s.
This, also, is a discouraging sign for the Euro, especially as services account for more than half of the entire economic activity (and trade) within the Eurozone...
Once again, Ouch!..
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