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

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Listed:
  • Jeffrey A. Frankel and Shang-Jin Wei.

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

  • Jeffrey A. Frankel and Shang-Jin Wei., 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 C95-053, University of California at Berkeley.
    • Handle: RePEc:ucb:calbcd:c95-053
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    JEL classification:

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

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