Working Paper: CEPR ID: DP2891
Authors: Reuven Glick; Andrew K. Rose
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.
Keywords: bilateral; common currency; country effects; empirical; fixed; gravity; international monetary; random; union; within
JEL Codes: F15; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Joining a currency union (F36) | Increase in bilateral trade (F10) |
| Leaving a currency union (F36) | Decrease in bilateral trade (F19) |
| Currency unions (F36) | Trade flows (F10) |
| Bilateral trade rises (F10) | Currency union formation (F36) |