EMU and trade: The euro effect on the agricultural sector

Abstract

This paper uses a structural gravity model to examine the partial equilibrium effects of the European Monetary Union (EMU) on trade for the agricultural sector. We find robust evidence that EMU has increased trade both between members and between EMU and non‐EMU member countries. This positive link is found in most member countries. Moreover, the overall impact of EMU on trade between members has not been different for late and early joiners. The year‐by‐year and period‐by‐period analyses show that the effect of EMU is increasing over time. In addition, we conduct a counterfactual general equilibrium experiment that reveals a remarkable welfare‐enhancing effect of EMU for its member countries.