Date of Award

6-2009

Document Type

Union College Only

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Ellen Foster

Language

English

Keywords

emu, exports, growth, partner, countries

Abstract

Germany’s exports have grown from under 20% of its GDP in 1971 to over 40% of GDP in 2007. Germany experienced significant export growth throughout this period, but this growth accelerated since the introduction of the EMU in 1999. Recent studies claim that joining a currency union has a positive effect on trade because a common currency eliminates exchange rate volatility and reduces transactions costs. This paper investigates whether the EMU has had a positive effect on German exports to other EMU nations. The regression model in this study is based on an augmented gravity model and an export demand function, and uses time-series panel data for German exports to 22 OECD countries. The dependent variable is the growth in German exports from 1991 to 2007 and independent variables include exchange rate volatility, partner country’s GDP, membership in the EMU and the EU, and relative prices between Germany and the partner country. Although the results from this study suggest that the effects of the Euro have been, at best, minimal, findings suggest that relative price levels between Germany and its partner countries and economic growth rates have a larger effect on Germany’s exports to partner countries than membership in the EMU.

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