Sarantis Kalyvitis (AUEB), Margarita Katsimi (AUEB and CESIfo), Evi Pappa (EUI), Brandon J. Restrepo (USDA)
Abstract: We estimate the effect of euro adoption on trade using data on Greek exporters spanning over the period 1999-2007. The overall impact of the euro on the value of exports was negative, but it masks important heterogeneity across firms with different levels of pre-euro productivity. Our estimates indicate that the volume of exports of initially low productivity firms fell by 31%, whereas the prices set by initially high-productivity firms rose by 11%. This dual effect is not driven by changes in financial conditions. Initially high productivity exporters also faced a productivity drop following euro adoption. The combined evidence suggests that initially high-productivity exporters faced increased demand and costs, whereas initially low-productivity exporters faced an adverse demand shift. These differential demand shifts are partially confirmed by movements in firm markups.