IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

On the robustness of the trade-inducing effects of trade agreements and currency unions

Listed author(s):
  • Jayjit Roy

    ()

Regional trade agreements (RTAs) and currency unions (CUs) are potentially endogenous trade cost proxies in equations estimating their effects on bilateral trade. In case of both, this problem is magnified by the paucity of reliable instruments. Instead of resorting to the oft-employed alternative of panel data to address selection on just the time-invariant unobservables, this paper assesses the extent to which a positive association between CU or RTA membership and bilateral trade can be considered causal. In addition, it attends to recent concerns over the extensive margin of trade (at the country-level) and the issue of zero trade observations in log-linearized gravity models by relying more on a bivariate probit analysis. Despite not identifying point estimates, striking results are obtained. While most cross-sections exhibit a positive association between both RTAs and CUs and trade, the evidence in favor of a robust causal effect is strong mainly for CUs. However, the magnitude of the CU effect is still sensitive to the amount of selection on unobservables. Moreover, selection into RTAs (CUs) is mostly found to be positive (negative). Finally, the presence of spillovers across the policy regimes is also detected. Copyright Springer-Verlag Berlin Heidelberg 2014

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s00181-013-0739-9
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 under "Related research" (further below) or search for a different version of it.

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 47 (2014)
Issue (Month): 1 (August)
Pages: 253-304

as
in new window

Handle: RePEc:spr:empeco:v:47:y:2014:i:1:p:253-304
DOI: 10.1007/s00181-013-0739-9
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/econometrics/journal/181/PS2

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. James M. Boughton, 1991. "The CFA Franc Zone; Currency Union and Monetary Standard," IMF Working Papers 91/133, International Monetary Fund.
  2. Christopher M. Meissner, 2003. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," American Economic Review, American Economic Association, vol. 93(1), pages 344-353, March.
  3. Gabriel J Felbermayr & Wilhelm Kohler, 2014. "Exploring the Intensive and Extensive Margins of World Trade," World Scientific Book Chapters,in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 4, pages 115-148 World Scientific Publishing Co. Pte. Ltd..
  4. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
  5. Chang, Pao-Li & Lee, Myoung-Jae, 2011. "The WTO trade effect," Journal of International Economics, Elsevier, vol. 85(1), pages 53-71, September.
  6. Daniel L. Millimet & Rusty Tchernis & Muna Husain, 2010. "School Nutrition Programs and the Incidence of Childhood Obesity," Journal of Human Resources, University of Wisconsin Press, vol. 45(3).
  7. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
  8. Fiorentino, Roberto V. & Verdeja, Luis & Toqueboeuf, Christelle, 2007. "The changing landscape of regional trade agreements: 2006 Update," WTO Discussion Papers 12, World Trade Organization (WTO), Economic Research and Statistics Division.
  9. Marc Flandreau & Mathilde Maurel, 2001. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe: Just Do It," Working Papers hal-01065006, HAL.
  10. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  11. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-1089, November.
  12. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
  13. Vincent Vicard, 2009. "On trade creation and regional trade agreements: does depth matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 167-187, July.
  14. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation," Journal of International Economics, Elsevier, vol. 77(1), pages 77-85, February.
  15. Egger, Hartmut & Egger, Peter & Greenaway, David, 2008. "The trade structure effects of endogenous regional trade agreements," Journal of International Economics, Elsevier, vol. 74(2), pages 278-298, March.
  16. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
  17. Millimet, Daniel L. & Tchernis, Rusty, 2009. "On the Specification of Propensity Scores, With Applications to the Analysis of Trade Policies," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 397-415.
  18. J.M.C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 51-74, September.
  19. Jayjit Roy, 2010. "Do Customs Union Members Engage in More Bilateral Trade than Free-Trade Agreement Members?," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 663-681, September.
  20. 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.
  21. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 449-461, October.
  22. Moheeput, Ashwin, 2008. "Issues on the choice of Exchange Rate Regimes and Currency Boards – An Analytical Survey," The Warwick Economics Research Paper Series (TWERPS) 855, University of Warwick, Department of Economics.
  23. Kurt Schuler, 2005. "Some Theory and History of Dollarization," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 115-125, Winter.
  24. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  25. 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.
  26. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, April.
  27. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, November.
  28. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
  29. Ghosh, Sucharita & Yamarik, Steven, 2004. "Are regional trading arrangements trade creating?: An application of extreme bounds analysis," Journal of International Economics, Elsevier, vol. 63(2), pages 369-395, July.
  30. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
  31. Pravin Krishna, 2013. "Preferential Trade Agreements and the World Trade System: A Multilateralist View," NBER Chapters,in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 131-160 National Bureau of Economic Research, Inc.
  32. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Estimating the effects of free trade agreements on international trade flows using matching econometrics," Journal of International Economics, Elsevier, vol. 77(1), pages 63-76, February.
  33. Frankel, Jeffrey A & Rose, Andrew K, 2000. "An Estimate of the Effect of Currency Unions on Trade and Output," CEPR Discussion Papers 2631, C.E.P.R. Discussion Papers.
  34. Gabriel Felbermayr & Wilhelm Kohler, 2014. "WTO Membership and the Extensive Margin of World Trade: New Evidence," World Scientific Book Chapters,in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 5, pages 149-192 World Scientific Publishing Co. Pte. Ltd..
  35. International Monetary Fund, 1999. "The Bahamas; Selected Issues and Statistical Appendix," IMF Staff Country Reports 99/106, International Monetary Fund.
  36. Tomáš Havránek, 2010. "Rose effect and the euro: is the magic gone?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 241-261, June.
  37. Gianluca Orefice, 2015. "International migration and trade agreements: The new role of PTAs," Canadian Journal of Economics, Canadian Economics Association, vol. 48(1), pages 310-334, February.
  38. Daniel J. Henderson & Daniel L. Millimet, 2008. "Is gravity linear?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 137-172.
  39. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
  40. Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2011. "The Trade Effects of Endogenous Preferential Trade Agreements," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 113-143, August.
  41. Melitz, Jacques, 2008. "Language and foreign trade," European Economic Review, Elsevier, vol. 52(4), pages 667-699, May.
  42. Pandej Chintrakarn, 2008. "Estimating the Euro Effects on Trade with Propensity Score Matching," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 186-198, February.
  43. Xuepeng Liu, 2009. "GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 428-446, August.
  44. repec:lmu:muenar:20646 is not listed on IDEAS
  45. Andrew K. Rose & T. D. Stanley, 2005. "A Meta-Analysis of the Effect of Common Currencies on International Trade ," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 347-365, July.
  46. Rose, Andrew, 2007. "Checking out: exits from currency unions," Journal of Financial Transformation, Capco Institute, vol. 19, pages 121-128.
  47. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-19, December.
  48. Magee, Christopher S.P., 2008. "New measures of trade creation and trade diversion," Journal of International Economics, Elsevier, vol. 75(2), pages 349-362, July.
  49. Jeffrey A. Frankel, 2008. "The Estimated Effects of the Euro on Trade: Why Are They Below Historical Effects of Monetary Unions Among Smaller Countries?," NBER Working Papers 14542, National Bureau of Economic Research, Inc.
  50. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
  51. Jacques Melitz, 2003. "Language and Foreign Trade," Working Papers 2003-26, Center for Research in Economics and Statistics.
  52. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
  53. David Barr & Francis Breedon & David Miles, 2003. "Life on the outside: economic conditions and prospects outside euroland," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 573-613, October.
  54. Tomáš Havránek, 2009. "Rose Effect and the Euro: The Magic is Gone," Working Papers IES 2009/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2009.
  55. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:47:y:2014:i:1:p:253-304. 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: (Sonal Shukla)

or (Rebekah McClure)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.