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Current account constraint as a barrier to international trade: the evidence from the European enlargement process?

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  • Mathilde Maurel

    (ROSES - Réformes et Ouverture des Systèmes Economiques post-Socialistes - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In a seminal paper, Rose (2000) emphasises the strong effect of the currency union membership on trade, controlling for exchange rate volatility. This effect is described as puzzling by Rose himself. If capital markets are incomplete and reluctant to finance trade imbalances, attempts at trade integration might be constrained by the degree of bilateral business cycle correlation. A contrario, complete monetary integration within monetary unions allows a relaxation of the current account constraint, a phenomenon that explains Rose's estimate of extra trade within monetary unions, which swells to three times the normal volume of trade. This paper provides evidence that monetary and fiscal co-ordinations matter not only within monetary unions, but also within any monetary setting, from floats to pegs. Available data on government spending allow direct testing of hypotheses on policy co-ordination.

Suggested Citation

  • Mathilde Maurel, 2004. "Current account constraint as a barrier to international trade: the evidence from the European enlargement process?," Post-Print halshs-00468600, HAL.
    • Handle: RePEc:hal:journl:halshs-00468600
    DOI: 10.1016/j.ecosys.2004.03.007
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    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Marc Flandreau & Mathilde Maurel, 2001. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe: Just Do It," Sciences Po publications n°3087, Sciences Po.
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    Cited by:

    1. Michael J. Artis & Jarko Fidrmuc & Johann Scharler, 2008. "The transmission of business cycles Implications for EMU enlargement1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(3), pages 559-582, July.
    2. Babetskaia-Kukharchuk, Oxana & Maurel, Mathilde, 2004. "Russia's accession to the WTO: the potential for trade increase," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 680-699, December.
    3. Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 105-124, February.
    4. Richard Pomfret, 2005. "Sequencing Trade and Monetary Integration," Others 0502004, University Library of Munich, Germany.
    5. Srðan Marinkoviæ & Zenaida Šabotiæ & Dragiæ Bankoviæ, 2018. "EU enlargement: Does economics of regional integration matter?," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 881-904.
    6. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.

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