The impact of the euro on New Zealand's bilateral trade with the European Union

Abstract

Since 1990, the European Union (EU) is New Zealand’s second biggest trading partner after Australia. New Zealand’s exports to the EU are mainly in agricultural products, such as sheep-meat, butter, venison, kiwifruit, apples, wools, hides and skins. New Zealand, on the other hand, imports high-technological products from the EU, such as cars, aircraft, telephone equipment, etc. However, the introduction of the European single currency, the euro on January 1999 could significantly impact business and/or trading relations between New Zealand and the EU because of the close trade relations between New Zealand and the EU. This paper examines whether the introduction of the euro resulted in structural changes on New Zealand import and export relations with the EU-15 member states. The research uses the Augmented Dickey-Fuller (ADF) unit root tests to test the order of integration of the import and export variables and whether all the variables are integrated in the same level, I(1). In addition, the Vector Autoregression (VAR) models and the Johansen maximum likelihood procedures are used to determine the cointegrating relations among the series in the import and export models. The results show instability in both import and export but the instability are more likely explained by the impact of the 1997 Asian Crisis than by the introduction of the euro.