Research On The Trade Effect Of Euro Zone Monetary Integration

The euro was officially taken effect on 1 January 1999, with eleven of the fifteen European Union member states initially qualified to join the Euro. In pace with the continued expansion of the euro zone, there have been 17 member countries so far, making the euro become the sole legal tender in all the euro zone countries. The introduction of the euro was a monumental achievement in regional economic integration and the wider use of the euro will also has a profound impact on the patterns of the economy and trade in EU even the world.Once different sovereign states are united by one currency within the euro zone, the exchange rate risk will be eliminated and transaction costs can be lowered so as to will bring great convenience to intra-regional trade and investment. All of these will be conducive to the trade growth within the euro zone. Given that the introduction of the euro marked a watershed, this paper investigated the significant difference in trade trend based on thorough analysis and comparison of the trade data between 1990 to 2008 including both internal and external, with Denmark, Sweden and the United Kingdom as trade partners outside the euro zone.Firstly, this paper takes use of trade data from UNcomtrade to observe the trade between members in euro zone. The two average increase rates of before and after euro circulation were 2.9% and 9.7% respectively, the latter as 3 times as the former. It shows the trade effect from monetary integration obviously.Secondly, observations of the trade between the euro zone members and EU15 countries(Denmark, Sweden and the United Kingdom)shows that the inner-trade increased faster than the outer-trade.Thirdly, by means of the theory of customs union, takes use of trade data study between 12 euro countries and 3 countries of Denmark, Sweden and the UK, we observed the trade creation effect and trade diversion effect. The result shows that the trade creation effect exceed the trade diversion effect by far.Finally, euro zone monetary integration have different affect on different commodities. The observations to different commodities by according to SITC shows that finished product its trade creation effect exceeds that of trade diversion effect, it does primary commodities too, otherwise difference between the two effects is smaller than that of finished product. It indicates that the monetary integration is beneficial to the development of finished product trade.