Working Paper: NBER ID: w21535
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; it has a mildly stimulating effect at best. Third and most importantly, estimates of the currency union effect on trade are sensitive to the exact econometric methodology; the lack of consistent and robust evidence undermines confidence in our ability to reliably estimate the effect of currency union on trade.
Keywords: Currency unions; Trade; EMU; Gravity models
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 union status (F36) | trade flows (F10) |
| EMU (F36) | trade flows (F10) |
| econometric methodology (C51) | estimates of currency union effect on trade (F36) |
| currency union effect on trade (F36) | methodological differences (C90) |