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Revisiting Rose’s common currency debate

  • Maria Santana-Gallego

    ()

    (Universidad de La Laguna)

  • Francisco J. Ledesma-Rodríguez

    ()

    (Universidad de La Laguna)

  • Jorge V. Pérez-Rodríguez

    ()

    (Universidad de Las Palmas)

The main objective of this research is to revisit the estimation of the effect of a common currency on international trade by applying the new methodology proposed by Helpman, Melitz and Rubistein (2008) and incorporating tourism to the theoretical framework. Rose (2000) estimates an empirical model of bilateral trade, finding a significant coefficient for a currency union variable of 1.2, suggesting an effect of currency unions on trade of over a 200%. Rose (2000)’s finding did not receive full acceptance and further research was consequently devoted to find reasons of such high effect. This still remains as a major puzzle in the International Economics. Rose and Van Wincoop (2001) hold that there may still be some omitted factors that drives countries to both participate in currency unions and trade more. In this research a gravity equation for trade is estimated controlling by international tourism.

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File URL: http://www.aeefi.com/RePEc/pdf/defi10-02.pdf
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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 10-02.

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Length: 25 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:aee:wpaper:1002
Contact details of provider: Web page: http://www.aeefi.com

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