The impact of the euro adoption on the complexity of goods in Slovenian exports

The aim of this paper is to verify the impact of the euro adoption on the complexity of goods in Slovenian exports. To the best knowledge of the authors, it is the first study on the consequences that the elimination of a national currency may have for that feature of trade. According to the Ricardian and Hechscher-Ohlin models of trade, such a policy decision (seen as an example of trade liberalization) may lead to specialization in the production of either more or less sophisticated goods – the outcome depends on the country’s technology and factor endowment. At the same time, increased FDI flows may make a particular economy more engaged in international production chains, with an ambiguous influence on export complexity. Given the fact that it is impossible to (a priori) theoretically predict the impact of monetary integration on export complexity, it is reasonable to search for the effects of the integration empirically. The authors used the Synthetic Control Method to compare the actual levels of export complexity in Slovenia after the adoption of the euro with the counterfactual scenario with Slovenia not entering the Eurozone. The results indicate that membership in the European Monetary Union (EMU) led to a temporary increase in the complexity of exported goods.