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Does currency matter for regional trade integration?

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  • He, Qing
  • Zhang, Ce
  • Zhu, Wenyu

Abstract

This paper examines the determinants of regional trade integration using information on trade and foreign exchange turnovers for the majority of the Regional Trade Agreements (RTAs) worldwide. We find a U-shaped relationship between the degrees of currency integration and trade integration within RTAs. When the share of the most frequently used regional currency is low, using the local currency impedes intra-RTA trade. However, upon exceeding a certain threshold, currency integration enhances intra-RTA trade. Moreover, the currency-trade-integration relationship varies with a few key RTA characteristics, including the number of member countries, differences in economic development among member countries, and trade and financial openness.

Suggested Citation

  • He, Qing & Zhang, Ce & Zhu, Wenyu, 2021. "Does currency matter for regional trade integration?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1219-1234.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:1219-1234
    DOI: 10.1016/j.iref.2019.11.010
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    Cited by:

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    2. Zheng, Minyu, 2025. "Digital finance, e-commerce development, and regional trade development," Finance Research Letters, Elsevier, vol. 81(C).

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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