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P. Esposito: Trade (dis)Integration and Imbalances in the EMU

image-07/13/2015 - 14:04The aim of this paper is to assess the role of competitiveness and financial integration on trade flows for countries belonging to the European Monetary Union (EMU). We argue that these two factors contributed both to the dynamics of trade imbalances and to the reduction of intra-EMU share in total trade. The latter effect adds to the physiological reduction of intra-EMU trade due to lower than average growth and competitiveness losses. We use a gravity-type bilateral trade model in order to estimate the impact on both imports and exports, providing a more detailed explanation for the developments of total and net trade. The results indicate that both competitiveness and financial opening significantly increased trade imbalances, particularly within the EMU. In addition, financial opening also played a strong role in the reduction of the intra-area trade share. 

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