Does a currency union affect trade? The time-series evidence

Abstract

Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering 217 countries from 1948 through 1997. During this sample a large number of countries left currency unions; 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 near doubling in bilateral trade.

Common currencies and FDI flows

“…In truth, this is more a necessity that a choice: given the aim of the paperestablishing the impact of currency unions on international investment flows-there is the need to identify the origin and the destination of FDI's; yet gravity models have proven very accurate in explaining bilateral flows using a limited amount of information. Following Glick and Rose (2002), Micco et al (2003) and Pommerenke (2003), all time-invariant control variables are subsumed in country-pair fixed effects. Using fixed effects allows one to isolate the time-series variation and hence reduces the concerns about endogeneity or reverse-causation.…”

International migration: a panel data analysis of the determinants of bilateral flows

“…Tables (versions 5.6 and 6.1), and the World Bank's Global Development Network Growth Database, Macro Time Series (Easterly and Sewadeh 2002). Geographic and cultural information, such as on great-circle distance 30 , land border, common language, and colonial ties, comes from Glick and Rose's (2002) data set on gravity-model variables. I also use statistics on the average number of schooling years in the total population of destination and origin countries (over age 15) from Barro and Lee's (2000) data set.…”

Is the ‘euro effect’ on trade so small after all? New evidence using gravity equations with panel cointegration techniques

“…developed a cross-section estimation technique to control for omitted variables with pair fixed effects. 3 However, this technique has been generalized to the panel data framework by many authors without considering the time dimension (see, for example, Glick andRose, 2002 or Flam andNordstrom, 2006). Country dummies (for exporters and importers) only remove the average impact leaving the time dimension in the residuals, which leads to biased results.…”

“…Ordinary Least Squares, OLS) are inappropriate, even if these problems have been largely ignored by applied researchers, as the econometric methods commonly used to solve them were not easy to implement. Glick and Rose (2002) and Frankel and Rose (2002) exploited the time series information using panel data, giving birth to a literature in search of 'more reasonable' effects (Eicher and Henn, 2011). Micco et al (2003) examined the dynamic impact of EMU on trade for 22 industrial countries using panel regressions based on a gravity model.…”