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The Costs and Benefits of Monetary Integration Reconsidered: towards Value-Added Based Openness Measures

Author

Listed:
  • Belke, Ansgar

    () (University of Hohenheim)

  • Wang, Lars

    (University of Hohenheim)

Abstract

This study re-assesses regional integration by taking new measures for the degree of openness into account. The value-added based economic integration (VEI) model which improves on traditional economic integration models forms the core of these openness indicators. We show that a shift from the usual proxies of the gross economic integration (GEI) model towards those of the VEI model leads to a decrease of the realized degree of economic integration. Hence, the costs (benefits) are higher (lower) for a country from joining a fixed exchange rate area as supposed by the standard GEI model. From this perspective, the outcomes based on the traditional GEI model tend to overestimate the potential success of a given monetary integration process. More specifically, even a revision of the recommendation for a country to participate in a single currency area might be a consequence. Finally, empirical estimates of these new openness measures are delivered for more than twenty countries.

Suggested Citation

  • Belke, Ansgar & Wang, Lars, 2006. "The Costs and Benefits of Monetary Integration Reconsidered: towards Value-Added Based Openness Measures," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 157-180.
  • Handle: RePEc:ris:integr:0350
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    More about this item

    Keywords

    Degree of economic integration; Exchange rate arrangement; Openness; Optimum currency areas; Value-added approach;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F15 - International Economics - - Trade - - - Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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