The Effect of the Single Currency on Exports: Comparative Firm-Level Evidence

We investigate how adopting the euro affects exports using firm-level data. In contrast to previous studies, we focus on two countries, Slovakia and Estonia, which adopted the single currency individually and had different exchange rate regimes. The results highlight the importance of the transaction costs channel related to exchange rate volatility. The euro changeover has a strong pro-exports effect for a country with a floating exchange rate, while it has almost no effect for a country with a fixed exchange rate to the euro. The export effect manifests itself mainly through the intensive margin and is heterogeneous across firms, with more productive firms and smaller exporters benefiting the most.