The currency union effect on trade is decreasing over time

De Sousa, Jose (2011): The currency union effect on trade is decreasing over time. Forthcoming in: Economics Letters

Abstract

Estimating a theoretical gravity model over a sixty-year period, from 1948 to 2009, I found an unexpected trend: the currency union impact on trade is decreasing over time. This result suggests that with trade and financial globalization currency unions become less and less important to promote trade.

• Item Type: MPRA Paper
• Language: English
• Keywords: Currency; Unions; Dollarization; Trade; Gravity; Poisson
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions

References

Anderson, J. and E. van Wincoop (2003), ``Gravity with Gravitas: A Solution to the Border Puzzle'', American Economic Review 93(1): 170-192.

Anderson, J. and E. van Wincoop (2004), ``Trade Costs'', Journal of Economic Literature, 42(3): 691-751.

Baier, S. and J. Bergstrand (2007), ``Do free trade agreements actually increase members' international trade?'' Journal of International Economics 71, 72-95.

Baldwin, R. (2006), In or Out: Does it Matter? An Evidence Based Analysis of the Trade Effects of the Euro, CEPR, London.

Bosquet, C. and H. Boulhol (2009), ``Gravity, log of gravity and the distance puzzle,'' mimeo.

Dias, D. (2011), ``Gravity and Globalization'', mimeo.

Disdier, A.C. and K. Head (2008), ``The Puzzling Persistence of the Distance Effect on Bilateral Trade,'' Review of Economics and Statistics 90(1): 37-48.

Glick, R. and A. Rose (2002), ``Does a Currency Union affect Trade? The Time Series Evidence,'' European Economic Review 46: 1125-1151.

Levy Yeyati, E., (2003), ``On the Impact of Common Currency on Bilateral Trade,'' Economics Letters 79: 125-129.

Rose, A (2000), ``One Money, One Market: Estimating the Effect of Common Currencies on Trade,'' Economic Policy 30: 9-45.

Rose, A (2001), ``Currency Unions and Trade: the Effect is Large,'' Economic Policy 33: 441-469.

Rose, A and E. van Wincoop (2001), ``National Money as a Barrier to International Trade: The Real Case for Currency Union,'' American Economic Review 91(2): 386-390.

Santos Silva, J.M.C. and S. Tenreyro (2006), ``The Log of Gravity,'' Review of Economics and Statistics 88(4): 641-658.

Santos Silva, J.M.C. and S. Tenreyro (2010), ``Currency Unions in Prospect and Retrospect,'' Annual Review of Economics 2: 51-74.

Santos Silva, J.M.C. and S. Tenreyro (2011), ``Further Simulation Evidence on the Performance of the Poisson Pseudo-Maximum Likelihood Estimator,'' Economics Letters 112(2): 220-222.

Yotov, Y. (2012), ``A Simple Solution to the Distance Puzzle in International Trade,'' mimeo.