One Money, One Market: A Revised Benchmark
AbstractThe introduction of the euro generated substantial interest in measuring the impact of currency unions (CUs) on trade flows. Roseâs (2000) initial estimates suggested a tripling of trade and created a literature in search of âmore reasonableâ CU effects. A recent meta-analysis of this literature shows that subsequent papers quantify CU trade impacts at 30â90 percent. However, most recent studies use shorter time series and fewer countries than Rose in his original work. We revisit Roseâs original benchmark, extend the dataset, and address Baldwinâs (2006) critiques of gravity implementation in large panels by simultaneously accounting for multilateral resistance and unobserved bilateral heterogeneity. This produces a robust average CU trade effect of 45 percent. Yet, the trade impacts of individual CUs vary substantially and are generally lower than those of preferential trade agreements (PTAs). Our revised benchmark can be used as a yardstick for future studies to delineate how estimates differ due to new data or differences in econometric specifications.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 19 (2011)
Issue (Month): 3 (08)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
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