Working Paper: CEPR ID: DP10615
Authors: Reuven Glick; Andrew K. Rose
Abstract: In our European Economic Review (2002) paper, we used pre-1998 data on countries participating in and leaving currency unions to estimate the effect of currency unions on trade using (then-) conventional gravity models. In this paper, we use a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union (EMU). We have three findings. First, our assumption of symmetry between the effects of entering and leaving a currency union seems reasonable in the data but is uninteresting. Second, EMU typically has a smaller trade effect than other currency unions, often estimated to be negligible or negative. Third and most importantly, estimates of the currency union effect on trade are sensitive to the exact econometric methodology; we find no substantive reliable and robust effect of currency union on trade.
Keywords: bilateral; common country; exports; fixed; gravity; Poisson; specific; time varying
JEL Codes: F15; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Currency unions (F36) | Trade (F19) |
| EMU (F36) | Trade (F19) |
| Econometric methodology (C51) | Currency union effect on trade (F36) |
| Currency union entries and exits (F36) | Trade effects (F14) |