EMU and Swedish Trade

This paper estimates the effect of joining European Economic and Monetary Union (EMU) on Swedish Trade. Sweden is very open to international trade: exports and imports combined together amount to two-thirds of Swedish GDP. Almost half of this trade is with the Euro-zone. The empirical evidence presented here shows that currency unions are associated with substantially higher trade and welfare. I estimate that trade with the Euro-zone would increase considerably if Sweden joins EMU. Sweden’s trade with the Euro-zone would probably rise by over fifty percent and could conceivably triple. A trade increase of this magnitude could result in a substantial boost to Swedish output and welfare. Contact: Andrew K. Rose, Haas School of Business, University of California, Berkeley, CA 94720-1900 Tel: +1 (510) 642-6609 Fax: +1 (510) 642-4700 E-mail: [email protected] URL: http://haas.berkeley.edu/~arose * B.T. Rocca Jr. Professor of International Business, Economic Analysis and Policy, Haas School of Business at the University of California, Berkeley, NBER Research Associate, and CEPR Research Fellow. This paper, commissioned by the Swedish Employer’s Confederation, borrows from my research in this area, including my Economic Policy 2000 paper “One Money, One Market: Estimating the Effect of Common Currencies on Trade”, my paper “EMU’s Potential Effect on British Trade: A Quantitative Assessment”, my California Management Review 2000 paper “Does A Currency Union Boost International Trade?”, and my joint work with Charles Engel, Jeffrey Frankel, and Eric van Wincoop. I thank Harry Flam and Lars Svensson for advice and Allan Åberg for comments and encouragement. My research papers and data sets are freely available at my website.