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What does European institutional integration tell us about trade integration?

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Author Info
Francesco Paolo Mongelli () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Ettore Dorrucci () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Itai Agur () (European University Institute, Florence, Italy.)

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Abstract

The start of the European Economic and Monetary Union (EMU) has spurred a new interest in the debate on the effects of monetary unions on regional economic integration. This literature either investigates past episodes of monetary unions or attempts to gauge any effect with a few years of EMU data. This paper takes instead a more general perspective - it investigates the link between economic integration and the overall institutional process of regional integration in Europe – of which monetary integration was only one step – over the last 50 years. We look mainly at two dimensions - European institutional integration – whose main steps were the customs union in 1968, the single market in 1993 and the single currency in 1999 – and intra-European trade. We pay special attention to the successive EU enlargements which took place in 1973, 1981, 1986, and 1995. Different facets of openness and trade linkages are presented. After looking at some descriptive links between institutional and trade integration, the paper uses some causality tests to assess the direction of causality and magnitude of impact. The evidence provided is consistent with the idea that the interaction between regional institutional and trade integration before monetary union matters. Such interaction runs in both directions, although the link from institutional to trade integration dominates. Many open questions remain, however.

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Paper provided by European Central Bank in its series Occasional Paper Series with number 40.

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Length: 44 pages
Date of creation: Dec 2005
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Handle: RePEc:ecb:ecbops:20050040

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Related research
Keywords: Optimum Currency Area Economic and Monetary Integration and EMU.

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F15 - International Economics - - Trade - - - Economic Integration
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 7-46, 04. [Downloadable!] (restricted)
  2. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July. [Downloadable!] (restricted)
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  3. Francesco Paolo Mongelli, 2002. "'New' views on the optimum currency area theory: what is EMU telling us?," Working Paper Series 138, European Central Bank. [Downloadable!]
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  4. Kenen, Peter B & Rodrik, Dani, 1986. "Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 311-15, May. [Downloadable!] (restricted)
  5. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR, CES, MSH, vol. 16(33), pages 449-461, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roland Rieder, 2006. "Playing Dominoes in Europe: An Empirical Analysis of the Domino Theory for the EU, 1962-2004," HEI Working Papers 11-2006, Economics Section, The Graduate Institute of International Studies, revised Jun 2006. [Downloadable!]
  2. Frank Dierick & Fatima Pires & Martin Scheicher & Kai Gereon Spitzer, 2005. "The New Basel Capital Framework and its implementation in the European Union," Occasional Paper Series 42, European Central Bank. [Downloadable!]
  3. Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2005. "Trade Integration of Central and Eastern European Countries: Lessons from a Gravity Model," Working Papers 105, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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