A CURRENCY UNION’S EFFECT ON INTERNATIONAL TRADE - EMU membership effect on international trade for Slovenia, Cyprus, Malta and Slovakia

Abstract

This thesis investigates if there is an increase in international trade from joining a currency union. This is done by looking at the European Monetary Union with a focus on four countries that became members in 2007-2009: Slovenia, Cyprus, Malta and Slovakia. By using an augmented version of the gravity model of trade that has become one of the signature models for looking at international trade, a time period of 1999-2017 is observed. Fixed effects are applied alongside a pooled OLS. The fixed effects are added to the model in order to isolate the time-invariant factors influencing trade, which is the recommended model by previous researchers Glick and Rose. The results show an increase in international trade by 13.6 percent for individual countries. The conclusion to this investigation is that EMU as a currency union increase trade.