The prospect of the proposed Currency Union on intra-regional trade in East African Community

Stanley, Abban (2020): The prospect of the proposed Currency Union on intra-regional trade in East African Community.

Abstract

Currency union with a common policy is welfare superlative to the use of sovereign currencies even if a member of the East African Community uses a convertible currency. In this background, the study evaluates whether adopting a common currency will lead to trade using an augmented gravity model of international trade. Additionally, the study investigates the effect of tariffs and nontariff on trade in EAC. The results show that adopting a common currency will lead to trade. Also, the study showed that trade will be enhanced by six-folds when tariffs and nontariff is eliminated. The study concludes that a currency union with a common policy could serve as a panacea when the appropriate institutional policy framework is adopted to ensure transparency by reducing trade and non-trade barriers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Currency union, Sovereign currencies, tariff, nontariff, gravity model of international trade, panacea, Optimal Currency Area, intra-regional trade
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; F - International Economics > F1 - Trade; F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F45 - Macroeconomic Issues of Monetary Unions

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