Currency unions and heterogeneous trade effects: the case of the latin monetary union

Jacopo Timini

No 1739, Working Papers from Banco de España

Abstract: The Latin Monetary Union (LMU) agreement signed in December 1865 by France, Italy, Belgium and Switzerland standardised gold and silver coinage in member countries and allowed free circulation of national coins in the Union. In his seminal study, Flandreau (2000) found no evidence of an overall positive effect of the LMU on trade. In this paper, I estimate the effects of this currency agreement on trade. In my gravity model I explicitly take into account the changing conditions in the international environment that affected the LMU’s underlying economic foundations (i.e. the limits on silver coinage agreed upon in 1874) and its rules (i.e. the “liquidation clause” of 1885). I also test the existence of heterogeneous effects on bilateral trade within the LMU. In line with Flandreau, I find no significant LMU trade effects. However, I find support for the hypothesis that the LMU had significant trade effects for the period 1865-1874. These effects were nonetheless concentrated in trade flows between France and the rest of the LMU members, following a hub-and-spokes structure. Moreover, I find evidence for the existence of an 1874 “LMU-wide” structural break, which affected the course of trade flows within the Union.

Keywords: international trade; currency unions; Latin Monetary Union; gravity model; bimetallism (search for similar items in EconPapers)
JEL-codes: F45 N73 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-11
New Economics Papers: this item is included in nep-his, nep-int and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Currency unions and heterogeneous trade effects: the case of the Latin Monetary Union* (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1739

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