Regional welfare effects of the European Monetary Union
In: Spatial implications of the European Monetary Union
This paper estimates welfare effects resulting from reduced transaction costs in international trade, using a static multiregional general equilibrium model. The kernel of the model is the trade part specified in Dixit-Stiglitz-style. Interregional trade shows a gravity pattern due to transaction costs depending on distance. Transaction cost reductions brought about by EMU are based on econometric estimates by GLICK and ROSE, relying on trade intensification following the establishment of other currency unions worldwide. According to our results EMU could imply a welfare gain for the participating countries amounting to 1% of GDP annually. Our simulation results show that this concern that the spatial effect of EMU might contradict the cohesion objectives of the European Union is not to be substantiated. Regions close to the borders are supposed to have the highest trade intensities with partner countries and therefore gain most from saving of transaction costs in international trade.
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- Frankel, Jeffrey & Rose, Andrew K., 2001.
"An Estimate of the Effect of Common Currencies on Trade and Income,"
Working Paper Series
rwp01-013, Harvard University, John F. Kennedy School of Government.
- Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
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"Gravity with Gravitas: A Solution to the Border Puzzle,"
NBER Working Papers
8079, National Bureau of Economic Research, Inc.
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- James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
- 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.
- 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, 04.
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