FIW Policy Brief No. 15: How the Euro Impacted on Foreign Trade in the EU and Austria

According to international economics, the introduction of a common currency was expected to increase foreign trade within the euro area by reducing both fixed and variable trading costs. However, since the economy in the euro area grew at a lesser rate than that of selected trade partners, counter-trends were found so that straightforward descriptive statistics did not supply any obvious evidence in favour of this theory. In actual fact, the share of intra-Euro area trading has declined ever since the monetary union was put in place. Nevertheless, most econometric studies found positive trade effects of the common currency amounting to 10 to 15 percent. Most of these effects were due to an extension of existing trading, while an enlargement of categories of traded goods appears to have played a minor role only. The effect was above-average in sectors characterised by high degrees of processing and product differentiation (pharmaceuticals, machines, consumer goods). The largest growth in exports driven by the introduction of the common currency was found in Germany; for Austria the results were above the average of the euro area. Small countries that joined the EU only recently profited most from the currency union; it is thus possible that the effects of future accessions to the currency union could be stronger.