Trade effects of the euro adoption by the EU new member states

In this paper we estimate the trade effects of the euro adoption in countries that joined the European Union in 2004. We employ a generalized gravity model that controls for an extended set of trade theory and policy variables. Trade theory variables include both the country size and factor proportion variables. Trade policy variables include the membership in GATT/WTO, CEFTA, OECD, EU and Europe agreements. The gravity model is estimated for the sample consisting of over 20 thousand country-pairs during the period 1990−2010 using the fixed effects estimator. It seems that elimination of exchange rate volatility resulted in trade expansion for the new member states but the accession to the Eurozone did not have positive effects on the volume of exports of the analyzed countries.