the Glick and Rose estimation strategy implicitly assumes that the end of the cold war had no impact on trade between the East and the West. Several of the Euro countries today, such as the former East Germany, were previously part of the Warsaw Pact. Any increase in trade between Eastern and Western European countries following the end of the cold war would clearly bias the Glick and Rose (2017) results, which naively compare the entire pre-1999 trade history with trade after the introduction of the Euro.
Pointer from Mark Thoma.
Campbell is criticizing a paper that found that the creation of the Euro increased trade by 50 percent. He is suggesting that the result could have been driven by the fall in the Berlin wall, which was not caused by the advent of the Euro. The question “what drives the result?” is one that you should ask about any empirical paper. Sadly, it is rarely disclosed honestly by authors, who may not even be aware of the answer.
Zeroing on effects and results are extremely tough as there usually multiple of factors and sometimes very hidden variables.
1) My favorite econometric paper (I had the Prof in college) in the 1990 showed people who used illegal drugs had higher wages which was something they set out to prove the opposite. My argument was illegal drug usage result was an indication of a higher risk tolerance personality versus the impact of drugs.
2) Look at all the papers and ideas about the fall in crime in the US since 1990. And in SoCal, we are seeing lots of 25 years since the Rodney King riots and literally nobody in 1992 was saying our nation would experience a historic drop in crime the next ten years. And yet crime is at levels of the late 1950s and I still have seen a good distinct reason that we used for more crime ridden areas today.