The Impact of the Adoption of the Euro: Evidence From Portugal

The purpose of this paper is to analyze the impact of the adoption of the Euro on trade within the Euro-zone, in particular on how it specifically affects the Iberian Peninsula, more specifically the country of Portugal. The literature on monetary unions has argued that there are benefits and costs for those countries in entering a monetary union and adopting a single currency other than their own and who give up their monetary policy. The primary benefits from following this course of action are the uncertainties associated with exchange rate fluctuations and the elimination of transaction costs. Other benefits include 1) a single European market, 2) a single financial market, which benefits both investors and savers, 3) political integration, which benefits the entire process of integration, and 4) practical benefits, such as facilitating travel within the Euro area. Included among the costs are the loss of seignorage and the loss of an independent monetary policy