Essays in international finance -The treatment effect approach

In the first chapter, I estimate the average treatment effect of adopting the euro on growth between 1990 and 2011 using two relatively new microeconometric techniques, namely, propensity score matching and the Synthetic Control Method(SCM). Using propensity score matching I provide empirical evidence suggesting that adopting the euro has a significant and negative effect on growth. Nevertheless, the effect of adopting the euro differs with different time periods and samples. Using the SCM, I assess how Eurozone countries would have performed if they had not adopted the euro. While some countries would have performed better without the euro, some would not. Adoption of the euro has different estimated effects when each Eurozone country is investigated separately. In the second chapter, I estimate the average treatment effect of adopting the euro on trade between 1990 and 2011 using propensity score matching. My findings confirm that there is a positive and significant effect of the euro on trade among Eurozone countries. In addition to this, the time period before and after the global financial crisis in 2008 plays a role and the effect of the euro differs. Propensity score matching supports the findings of previous papers but the magnitude of the effect varies based on the matching algorithm. In the third chapter, I provide evidence on the implications of Islamic banking in Turkey using propensity score matching and the SCM. I estimate the determinants of profitability for Islamic and conventional banks and my findings are in line with the literature. Furthermore, I investigate the average treatment effect of being an Islamic bank and my findings suggest that being an Islamic bank has a positive effect on ROA and ROE but has a negative effect on NIM. Finally, I asses the influence of law No: 5411 which made both Islamic and conventional banks operate under the same law using the SCM. In terms of ROA and ROE, Islamic banks would have performed worse, if the law had not passed.