Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering 217 countries from 1948 through 1997. During this sample a large number of countries left currency unions; they experienced economically and statistically significant declines in bilateral trade, after accounting for other factors. Assuming symmetry, we estimate that a pair of countries that starts to use a common currency experiences a near doubling in bilateral trade.
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Length: Date of creation: 2001 Date of revision: Publication status: Published in European Economic Review, Vol. 46, No. 6 , June 2002, Pages 1125-1151 Handle: RePEc:fip:fedfap:2001-13
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