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European Integration and the Regionalization of World Trade and Currencies: The Economics and the Politics

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  • Frankel, Jeffrey A.
  • Wei, Shang-Jin

Abstract

Using the gravity model, we find evidence that the EC affects trade flows. A pair of EC members trade with each other 48 percent more than two otherwise similarly-placed countries. We also find that bilateral exchange rate variability fell by half within Europe during the 1980s, and that this stability worked to increase intra-continental trade by an estimated 5.9 percent. If account is taken of the endogeneity of the currency regime, the estimated effect of bilateral exchange rate variability on trade is much smaller. The political economy part of the paper catalogues ways in which regional arrangements undermine political support for multilateral liberalization, and ways in which they can have the opposite effect.

Suggested Citation

  • Frankel, Jeffrey A. & Wei, Shang-Jin, 1995. "European Integration and the Regionalization of World Trade and Currencies: The Economics and the Politics," Center for International and Development Economics Research (CIDER) Working Papers 233413, University of California-Berkeley, Department of Economics.
  • Handle: RePEc:ags:ucbewp:233413
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    References listed on IDEAS

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    Cited by:

    1. Antoni Estevadeordal & Matthew Shearer & Kati Suominen, 2009. "Market Access Provisions in Regional Trade Agreement," IDB Publications (Working Papers) 2524, Inter-American Development Bank.
    2. Fukui, E. Tani & Hammer, Alexander B. & Jones, Lin Z., 2013. "Are U.S. exports influenced by stronger IPR protection measures in recipient markets?," Business Horizons, Elsevier, vol. 56(2), pages 179-188.
    3. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
    4. Frankel, Jeffrey, 2004. "Real Convergence and Euro Adoption in Central and Eastern Europe: Trade and Business Cycle Correlations as Endogenous Criteria for Joining EMU," Working Paper Series rwp04-039, Harvard University, John F. Kennedy School of Government.
    5. Dicke, Hugo & Foders, Federico, 2000. "Wirtschaftliche Auswirkungen einer EU-Erweiterung auf die Mitgliedstaaten," Open Access Publications from Kiel Institute for the World Economy 2510, Kiel Institute for the World Economy (IfW).
    6. Anna Maria Mayda & Chad Steinberg, 2009. "Do South-South trade agreements increase trade? Commodity-level evidence from COMESA," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1361-1389, November.
    7. Chinn, Menzie David & Frankel, Jeffrey A., 2003. "The Euro Area and World Interest Rates," Santa Cruz Department of Economics, Working Paper Series qt2nb2h4zr, Department of Economics, UC Santa Cruz.
    8. Guo, Rongxing, 2004. "How culture influences foreign trade: evidence from the U.S. and China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(6), pages 785-812, December.
    9. A.R. Kemal, 2004. "Exploring Pakistan’s Regional Economic Cooperation Potential," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 313-334.
    10. Matthew Shearer & Kati Suominen & Antoni Estevadeordal, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications (Working Papers) 9300, Inter-American Development Bank.
    11. repec:spr:chfecr:v:4:y:2015:i:1:d:10.1186_s40589-015-0025-4 is not listed on IDEAS
    12. Antoni Estevadeordal & Kati Suominen, 2008. "Sequencing Regional Trade Integration and Cooperation Agreements," The World Economy, Wiley Blackwell, vol. 31(1), pages 112-140, January.
    13. Baldwin, Richard, 2010. "Sequencing regionalism: Theory, European practice, and lessons for Asia," CEPR Discussion Papers 7852, C.E.P.R. Discussion Papers.
    14. Antoni Estevadeordal & Matthew Shearer & Kati Suominen, 2009. "Market Access Provisions in Regional Trade Agreement," IDB Publications (Working Papers) 9311, Inter-American Development Bank.
    15. Azim M Sadikov, 2008. "External Tariff Liberalization in CARICOM; A Commodity-Level Analysis," IMF Working Papers 08/33, International Monetary Fund.
    16. Matthew Shearer & Kati Suominen & Antoni Estevadeordal, 2009. "Multilateralising RTAs in the Americas: State of Play and Ways Forward," IDB Publications (Working Papers) 2522, Inter-American Development Bank.
    17. Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(3), pages 309-327.
    18. Amina Lahrèche-Révil & Juliette Milgram, 2006. "Exchange-rate policies and trade in the MENA countries," ThE Papers 06/07, Department of Economic Theory and Economic History of the University of Granada..
    19. Wang, Jiao & Ji, Andy G., 2006. "Exchange rate sensitivity of China's bilateral trade flows," BOFIT Discussion Papers 19/2006, Bank of Finland, Institute for Economies in Transition.

    More about this item

    Keywords

    European Union; Free Trade Area; gravity model; currency bloc; regionalism; Financial Economics; International Relations/Trade; F15; F36;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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