How the size of a Country Affects its Performance when joining the European Monetary Union

Sammanfattning: The purpose of the thesis is to evaluate if smaller countries that have joined the ‘European Monetary Union’ outperform their larger partners in terms of higher growth and lower inflation. This is something suggested by the theory of Optimum Currency Areas (OCA). Three smaller countries, Austria, Finland and Ireland, were selected for analysis. Their growth and inflation were compared to the weighted growth and inflation of France, Germany and Italy and against a control-group of advanced countries. A simple form of regression analysis along with some graphical analysis was used and the results to some extent support that the small countries have outperformed their larger partners in term of growth. On the other hand they seem to experience a relatively higher inflation, which is contradicting the OCA theory. Perhaps this can be explained by the fact that higher growth is often associated with higher inflation in more advanced countries.