IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v117y2002i2p437-466..html
   My bibliography  Save this article

An Estimate of the Effect of Common Currencies on Trade and Income

Author

Listed:
  • Jeffrey Frankel
  • Andrew Rose

Abstract

To quantify the implications of common currencies for trade and income, we use data for over 200 countries and dependencies. In our two-stage approach, estimates at the first stage suggest that belonging to a currency union/board triples trade with other currency union members. Moreover, there is no evidence of trade diversion. Our estimates at the second stage suggest that every 1 percent increase in a country's overall trade (relative to GDP) raises income per capita by at least one-third of a percent. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that important beneficial effects of currency unions come through the promotion of trade.

Suggested Citation

  • Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 437-466.
  • Handle: RePEc:oup:qjecon:v:117:y:2002:i:2:p:437-466.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1162/003355302753650292
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A. & Wei, Shang-Jin, 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers 233209, University of California-Berkeley, Department of Economics.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
    4. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    5. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    6. Rudiger Dornbusch & Sebastian Edwards, 1995. "Reform, Recovery, and Growth: Latin America and the Middle East," NBER Books, National Bureau of Economic Research, Inc, number dorn95-1.
    7. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, July.
    8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    9. Sebastian Edwards, 1995. "Trade Policy, Exchange Rates, and Growth," NBER Chapters, in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 13-52, National Bureau of Economic Research, Inc.
    10. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    11. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    12. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    13. Fischer, S., 1991. "Growth, Macroeconomics, and Development," Working papers 580, Massachusetts Institute of Technology (MIT), Department of Economics.
    14. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 329-379, National Bureau of Economic Research, Inc.
    15. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
    16. Dani Rodrik, 1994. "Getting Interventions Right: How South Korea and Taiwan Grew Rich," NBER Working Papers 4964, National Bureau of Economic Research, Inc.
    17. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    18. Francisco Rodríguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338, National Bureau of Economic Research, Inc.
    19. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    20. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-1393, September.
    21. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-544, April.
    22. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Working Papers 3702, National Bureau of Economic Research, Inc.
    23. Elhanan Helpman, 1988. "Growth, Technological Progress, and Trade," NBER Working Papers 2592, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
    2. Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc.
    3. Jeffrey A. Frankel & Andrew K. Rose, 2005. "Is Trade Good or Bad for the Environment? Sorting Out the Causality," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 85-91, February.
    4. Wacziarg, Romain, 1998. "Measuring the dynamic gains from trade," Policy Research Working Paper Series 2001, The World Bank.
    5. Eleanor Doyle & Inmaculada Martínez-Zarzoso, 2006. "Relating Productivity and Trade 1980-2000: A Chicken and Egg Analysis," Ibero America Institute for Econ. Research (IAI) Discussion Papers 147, Ibero-America Institute for Economic Research.
    6. Arjan Lejour & Vladimir Solanic & Paul Tang, 2009. "EU Accession and Income Growth: An Empirical Approach," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(1), pages 127-144, May.
    7. Gylfason, Thorvaldur, 1999. "Exports, Inflation and Growth," World Development, Elsevier, vol. 27(6), pages 1031-1057, June.
    8. Mr. Allan D. Brunner, 2003. "The Long-Run Effects of Tradeon Income and Income Growth," IMF Working Papers 2003/037, International Monetary Fund.
    9. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    10. Vatcharin Sirimaneetham & Jonathan Temple, 2006. "Macroeconomic policy and the distribution of growth rates," Bristol Economics Discussion Papers 06/584, School of Economics, University of Bristol, UK.
    11. Frankel, Jeffrey A. & Romer, David & Cyrus, Teresa, 1995. "Trade and Growth in East Asian Countries: Cause and Effect?," Center for International and Development Economics Research (CIDER) Working Papers 233408, University of California-Berkeley, Department of Economics.
    12. Eriṣ, Mehmet N. & Ulaṣan, Bülent, 2013. "Trade openness and economic growth: Bayesian model averaging estimate of cross-country growth regressions," Economic Modelling, Elsevier, vol. 33(C), pages 867-883.
    13. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 48.
    14. Savvides, Andreas, 1995. "Economic growth in Africa," World Development, Elsevier, vol. 23(3), pages 449-458, March.
    15. Anne O. Krueger & Mr. Andrew Berg, 2003. "Trade, Growth, and Poverty: A Selective Survey," IMF Working Papers 2003/030, International Monetary Fund.
    16. Bleaney, Michael F., 1996. "Macroeconomic stability, investment and growth in developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 461-477, March.
    17. Lucas Bretschger, 2003. "Growth in a Globalised Economy: The Effects of Capital Taxes and Tax Competition," CER-ETH Economics working paper series 03/24, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    18. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
    19. Badinger, Harald, 2008. "Trade policy and productivity," European Economic Review, Elsevier, vol. 52(5), pages 867-891, July.
    20. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 613-646.

    More about this item

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. An Estimate of the Effect of Common Currencies on Trade and Income (QJE 2002) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:117:y:2002:i:2:p:437-466.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://academic.oup.com/qje .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/qje .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.