The Euro before the EU?: An Estimate of the Economic Effects of Euroization in the Western Balkans

Studies on the merits of early euroization of the new EU member states from Central Europe suggest that potential gains from adopting the euro for trade and growth are substantial. This claim is bolstered by generalized gravity equation models estimating the effect of common currencies on trade. This book argues in favor of a sophisticated and statistically more robust form of the gravity equation than the traditional ordinary least square model used in other studies. It is argued that a Poisson likelihood regression model is better suited to estimate the impact of common currencies on bilateral trade. The dataset used includes information for 150 countries, dependencies, and territories. The study estimates and compares potential effects of euroization on bilateral trade with the Eurozone and national incomes of Albania, Serbia, and Macedonia using three different gravity estimates. Following that, it analyzes the potential effects of euroization on intra regional trade and economic integration in Western Balkans.