An Investigation of the Effect of a Common Currency on Bilateral Trade

Ali Feghehmajidi (), Khaled Ahmad Zade () and Fatemeh Najafi ()
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Ali Feghehmajidi : University of Kurdistan
Khaled Ahmad Zade : University of Kurdistan
Fatemeh Najafi : University of Kurdistan

Journal of Money and Economy, 2019, vol. 14, issue 1, 63-84

Abstract: Developing economic relations with the countries of the world is necessary for any country, and the nations of the world are always looking to build their business. The expansion of the phenomenon of economic globalization has led states to engage in countries' engagement in pursuing their interests in the form of regional cooperation and the formation of monetary :union:s. Therefore, according to the importance of this issue, the effect of the monetary :union: on bilateral trade is studied using a gravity pattern based on the panel data approach. Also, the factors affecting bilateral trade between selected countries of the world during the period of 1993-2015 are studied. The results of the research show that the effect of a common currency on bilateral trade is positive, which increases trade between countries. Also, the study of variables shows that GDP variables of states and business partners, common currency, race, and standard language have a positive and significant effect on bilateral trade between nations. Real exchange rate variables and trade openness do not affect, and the distance and GDP per capita variables have a negative and significant impact on the flow of trade between the drains. Hence, it is concluded that countries that are adjacent to each other or have common currency would strengthen the trade between themselves, by creating monetary :union:s.

Keywords: Monetary :union:; Bilateral Trade; the Theory of Optimal Currency Area; the Gravity Model (search for similar items in EconPapers)
JEL-codes: E49 F15 F47 (search for similar items in EconPapers)
Date: 2019
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