Currency Unions, Trade, and Heterogeneity

Natalie Chen and Dennis Novy

No 324, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: What is the effect of currency unions on international trade? This paper offers a new approach. We rely on a translog gravity equation that predicts variable trade cost elasticities, both across and within country pairs. While we estimate that currency unions are associated with a trade increase of around 38 percent on average, we find substantial underlying heterogeneity. Consistent with the predictions of our model, we find effects around three times as strong for country pairs associated with small import shares, and a zero effect for large import shares. Our results imply that conventional homogeneous currency union estimates do not provide helpful guidance for countries considering to join a currency union such as the euro.

Date: 2018
New Economics Papers: this item is included in nep-ifn, nep-int, nep-mon and nep-opm
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Currency unions, trade and heterogeneity (2018)
Working Paper: Currency Unions, Trade, and Heterogeneity (2018)
Working Paper: Currency Unions, Trade, and Heterogeneity (2018)
Working Paper: Currency unions, trade and heterogeneity (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:324

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