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Currency unions and heterogeneous trade effects: the case of the latin monetary union

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  • Jacopo Timini

    (Banco de España)

Abstract

The Latin Monetary Union (LMU) agreement signed in December 1865 by France, Italy, Belgium and Switzerland standardised gold and silver coinage in member countries and allowed free circulation of national coins in the Union. In his seminal study, Flandreau (2000) found no evidence of an overall positive effect of the LMU on trade. In this paper, I estimate the effects of this currency agreement on trade. In my gravity model I explicitly take into account the changing conditions in the international environment that affected the LMU’s underlying economic foundations (i.e. the limits on silver coinage agreed upon in 1874) and its rules (i.e. the “liquidation clause” of 1885). I also test the existence of heterogeneous effects on bilateral trade within the LMU. In line with Flandreau, I find no significant LMU trade effects. However, I find support for the hypothesis that the LMU had significant trade effects for the period 1865-1874. These effects were nonetheless concentrated in trade flows between France and the rest of the LMU members, following a hub-and-spokes structure. Moreover, I find evidence for the existence of an 1874 “LMU-wide” structural break, which affected the course of trade flows within the Union.

Suggested Citation

  • Jacopo Timini, 2017. "Currency unions and heterogeneous trade effects: the case of the latin monetary union," Working Papers 1739, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1739
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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/17/Fich/dt1739e.pdf
    File Function: First version, November 2017
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    References listed on IDEAS

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    1. Glick, Reuven & Rose, Andrew K., 2002. "Does a currency union affect trade? The time-series evidence," European Economic Review, Elsevier, vol. 46(6), pages 1125-1151, June.
    2. Antonio Tena Junguito, 1992. "Las estadísticas históricas del comercio internacional: fiabilidad y comparabilidad," Estudios de Historia Económica, Banco de España;Estudios de Historia Económica Homepage, number 24.
    3. Flandreau, Marc, 1996. "The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880," The Journal of Economic History, Cambridge University Press, vol. 56(4), pages 862-897, December.
    4. Flandreau, Marc & Oosterlinck, Kim, 2012. "Was the emergence of the international gold standard expected? Evidence from Indian Government securities," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 649-669.
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    7. Lampe, Markus, 2009. "Effects of Bilateralism and the MFN Clause on International Trade: Evidence for the Cobden-Chevalier Network, 1860-1875," The Journal of Economic History, Cambridge University Press, vol. 69(4), pages 1012-1040, December.
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    Cited by:

    1. Timini, Jacopo & Conesa, Marina, 2019. "Chinese Exports and Non-Tariff Measures: Testing for Heterogeneous Effects at the Product Level," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 34(2), pages 327-345.

    More about this item

    Keywords

    international trade; currency unions; Latin Monetary Union; gravity model; bimetallism;

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • N73 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: Pre-1913

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