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Currency unions and trade: A post-EMU reassessment

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  • Glick, Reuven
  • Rose, Andrew K.

Abstract

In our European Economic Review (2002) paper, we used pre-1998 data on countries participating in and leaving currency unions to estimate the effect of currency unions on trade using (then-) conventional gravity models. In this paper, we use a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union (EMU). We have three findings. First, our assumption of symmetry between the effects of entering and leaving a currency union seems reasonable in the data. Second, our preferred methodology indicates that EMU has boosted exports by around 50%. While other estimation techniques yield different results, a panel approach with both time-varying country and dyadic fixed effects on a large span of data (across both countries and time) seems to deliver insensitive and reliable results. Third, different currency unions have different trade effects.

Suggested Citation

  • Glick, Reuven & Rose, Andrew K., 2016. "Currency unions and trade: A post-EMU reassessment," European Economic Review, Elsevier, vol. 87(C), pages 78-91.
  • Handle: RePEc:eee:eecrev:v:87:y:2016:i:c:p:78-91
    DOI: 10.1016/j.euroecorev.2016.03.010
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    References listed on IDEAS

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    Cited by:

    1. Romelli, Davide & Terra, Cristina & Vasconcelos, Enrico, 2018. "Current account and real exchange rate changes: The impact of trade openness," European Economic Review, Elsevier, vol. 105(C), pages 135-158.
    2. Piotr Gabrielczak & Tomasz Serwach, 2017. "Does the euro increase the complexity of exported goods? The case of Estonia," Lodz Economics Working Papers 4/2017, University of Lodz, Faculty of Economics and Sociology.
    3. repec:eee:jimfin:v:83:y:2018:i:c:p:75-92 is not listed on IDEAS
    4. Chen, Natalie & Novy, Dennis, 2017. "Currency unions, trade and heterogeneity," LSE Research Online Documents on Economics 88487, London School of Economics and Political Science, LSE Library.
    5. Ender Demir & Giray Gozgor & Rangan Gupta & Huseyin Kaya, 2018. "Effects of Geopolitical Risks on Trade Flows: Evidence from the Gravity Model," Working Papers 201835, University of Pretoria, Department of Economics.
    6. repec:pal:compes:v:59:y:2017:i:2:d:10.1057_s41294-017-0020-x is not listed on IDEAS
    7. Piotr Gabrielczak & Tomasz Serwach, 2017. "The impact of the euro adoption on the complexity of goods in Slovenian exports," Lodz Economics Working Papers 3/2017, University of Lodz, Faculty of Economics and Sociology.
    8. Mariam Camarero & Estrella Gómez-Herrera & Cecilio Tamarit, 2018. "New Evidence on Trade and FDI: how Large is the Euro Effect?," Open Economies Review, Springer, vol. 29(2), pages 451-467, April.
    9. Andrew K. Rose, 2017. "Why do Estimates of the EMU Effect on Trade Vary so Much?," Open Economies Review, Springer, vol. 28(1), pages 1-18, February.
    10. Campos, Nauro F. & Macchiarelli, Corrado, 2016. "Core and Periphery in the European Monetary Union: Bayoumi and Eichengreen 25 years later," Economics Letters, Elsevier, vol. 147(C), pages 127-130.
    11. Reuven Glick, 2017. "Currency Unions and Regional Trade Agreements: EMU and EU Effects on Trade," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(2), pages 194-209, June.
    12. Thorvaldur Gylfason, 2016. "Efficiency, Fairness, and Social Cohesion in Europe and the United States: Incomes, Hours of Work, and Equality with an Afterthought on Iceland," CESifo Working Paper Series 6025, CESifo Group Munich.
    13. Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2018. "Trade law and trade fl ows," Working Papers 1804, Department of Applied Economics II, Universidad de Valencia.
    14. Mika, Alina & Zymek, Robert, 2018. "Friends without benefits? New EMU members and the “Euro Effect” on trade," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 75-92.
    15. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2018. "The happy few: cross-country evidence of the euro effect on trade," Working Papers 1803, Department of Applied Economics II, Universidad de Valencia.
    16. repec:cnb:ocpubv:as17 is not listed on IDEAS
    17. Campos, Nauro F. & Jarko, Fidrmuc & Iikka, Korhonen, 2017. "Business cycle synchronisation in a currency union : Taking stock of the evidence," Research Discussion Papers 28/2017, Bank of Finland.
    18. repec:ksa:szemle:1720 is not listed on IDEAS
    19. Martínez-Zarzoso, Inmaculada, 2017. "The Euro and the CFA Franc: Evidence of sectoral trade effects," Center for European, Governance and Economic Development Research Discussion Papers 311, University of Goettingen, Department of Economics.
    20. Hou, Yulin & Wang, Yun & Yilmazkuday, Hakan, 2017. "Gravity Channels in Trade," Globalization and Monetary Policy Institute Working Paper 297, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    Gravity; Exports; Bilateral; Fixed; Time-varying;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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