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Trade Effects of Currency Unions; Do Economic Dissimilarities Matter?

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  • Giorgia Albertin

Abstract

This paper provides a general equilibrium analysis of the trade effects of the formation of a currency union, and of its subsequent enlargement to include an economically dissimilar country. Furthermore, it investigates how economic dissimilarities among countries affect the magnitude of the trade effects fostered by a common currency. We show that sharing a common currency enhances the volume of bilateral trade among countries. However, the more economically dissimilar is an accession country, compared to the original members of a currency union, the smaller are the gains in trade that would follow the enlargement of a currency union.

Suggested Citation

  • Giorgia Albertin, 2008. "Trade Effects of Currency Unions; Do Economic Dissimilarities Matter?," IMF Working Papers 08/249, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/249
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    References listed on IDEAS

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    1. Hélène Rey, 2001. "International Trade and Currency Exchange," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 443-464.
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    4. Frankel, Jeffrey A. & Wei, Shang-Jin, 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers 233209, University of California-Berkeley, Department of Economics.
    5. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 449-461, October.
    6. 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.
    7. 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.
    8. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    9. Eichengreen, Barry & Irwin, Douglas, 1993. "Trade Blocs, Currency Blocs and the Disintegration of World Trade in the 1930s," CEPR Discussion Papers 837, C.E.P.R. Discussion Papers.
    10. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-1089, November.
    11. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters,in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
    12. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    13. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 437-466.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    International trade; Monetary unions; Trade integration; Trade models; Currency Union; Enlargement; Economic Dissimilarities; Intra-industry Trade; bilateral trade; trade costs; member country; trade effects; patterns of trade;

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