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Currency Unions, Trade Flows And Capital Flows

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  • James Yetman

Abstract

. Trade within currency unions is much larger than outside of currency unions, even after factoring in many relevant variables. The existing empirical evidence is based on reduced form models of trade, and therefore indicates correlation between but neither causality nor mechanism. This paper argues that the causal relationship runs from currency unions to trade, and then considers two possible mechanisms behind this: currency union membership: reduces trade resistance or reduces investment resistance. We argue that both mechanisms are required to explain the observed economic impact of currency union membership.

Suggested Citation

  • James Yetman, 2007. "Currency Unions, Trade Flows And Capital Flows," Pacific Economic Review, Wiley Blackwell, vol. 12(2), pages 189-204, May.
    • Handle: RePEc:bla:pacecr:v:12:y:2007:i:2:p:189-204
    DOI: 10.1111/j.1468-0106.2007.00346.x
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