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Currency Unions and Trade: Variations on Themes by Rose and Persson

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Author Info
Dr Peter Kenen (Reserve Bank of New Zealand)

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Abstract

Using a gravity equation, Andrew Rose finds that currency-union countries trade more intensively with each other than do other country pairs, and others report same result. Using a nonparametric test, however, Persson finds that trade flows between currency-union countries are not significantly different in size from other bilateral trade flows. Using another way to identify a currency-union country, this paper reproduces Persson's result but also produces an anomaly. When Rose's gravity equation is re-estimated using the data set furnished by the alternative definition of a currency-union country, Rose's result survives, although the currency-union effect is smaller than the effect he reported initially.

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File URL: http://www.rbnz.govt.nz/research/discusspapers/dp02_08.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2002/08.

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Length: 34p
Date of creation: Dec 2002
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Handle: RePEc:nzb:nzbdps:2002/08

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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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. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December. [Downloadable!] (restricted)
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  3. Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003. "The currency union effect on trade: early evidence from EMU," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 315-356, October. [Downloadable!] (restricted)
  4. Andrew K. Rose & Charles Engel, 2000. "Currency Unions and International Integration," NBER Working Papers 7872, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June. [Downloadable!] (restricted)
  6. Alberto Alesina & Robert Barro & Silvana Tenreyro, 2002. "Optimal Currency Areas," Harvard Institute of Economic Research Working Papers 1958, Harvard - Institute of Economic Research. [Downloadable!]
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  7. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October. [Downloadable!] (restricted)
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  8. Christie Smith, 2002. "Currency unions and gravity models revisited," Reserve Bank of New Zealand Discussion Paper Series DP2002/07, Reserve Bank of New Zealand. [Downloadable!]
  9. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR, CES, MSH, vol. 16(33), pages 433-462, 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. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. James Yetman, 2003. "Currency Unions, Trade Flows, and Capital Flows," Working Papers 182003, Hong Kong Institute for Monetary Research. [Downloadable!]
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  3. Andrew Rose, 2004. "A Meta-Analysis of the Effect of Common Currencies on International Trade," NBER Working Papers 10373, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Robin Pope & Reinhard Selten & Sebastian Kube & Jürgen von Hagen, 2006. "Experimental Evidence on the Benefits of Eliminating Exchange Rate Uncertainties and Why Expected Utility Theory causes Economists to Miss Them," Labsi Experimental Economics Laboratory University of Siena 010, University of Siena. [Downloadable!]
  5. Darvas, Zsolt & Szapáry, György, 2005. "Business Cycle Sychronization in the Enlarged EU," CEPR Discussion Papers 5179, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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