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Does a Currency Union Affect Trade? The Time Series Evidence

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  • Glick, Reuven
  • Rose, Andrew K

Abstract

Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering over 230 countries from 1948-97. During this sample over one hundred pairs of countries had currency union dissolutions; they experienced economically and statistically significant declines in bilateral trade, after accounting for other factors. Assuming symmetry, we estimate that a pair of countries that starts to use a common currency experiences a doubling in bilateral trade.

Suggested Citation

  • Glick, Reuven & Rose, Andrew K, 2001. "Does a Currency Union Affect Trade? The Time Series Evidence," CEPR Discussion Papers 2891, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2891
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    References listed on IDEAS

    as
    1. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 449-461, October.
    2. 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.
    3. 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.
    4. 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.
    5. Martin Feldstein, 1997. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 23-42, Fall.
    6. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
    7. Rodney Thom & Brendan M. Walsh, 2001. "The effect of a common currency on trade : Ireland before and after the Sterling link," Working Papers 200110, School of Economics, University College Dublin.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bilateral; common currency; country; effects; empirical; fixed; gravity; international; monetary; random; union; within;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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