Common Currency and Bilateral Trade: A spatial econometrics Approach

Ali Fagheh Majidi, Seyedeh Fatemeh Najafizadeh and Sahar Amidi ()
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Ali Fagheh Majidi: UOK - University of Kurdistan [Sanandaj - Iran]
Seyedeh Fatemeh Najafizadeh: UOK - University of Kurdistan [Sanandaj - Iran]
Sahar Amidi: LEO - Laboratoire d'Économie d'Orleans [FRE2014] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique, UOK - University of Kurdistan [Sanandaj - Iran]

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Abstract: The common currency is a legitimate recognition of political commitment to ensuring regional integration. Geographic distance and common currency as spatial variables are one of the most important determinants of regional integration and trade. This paper aims to investigate the spatial effects of common currency on bilateral trade using the spatial dynamic panel data model during 2006- 2016. The results show that the effect of common currency and geographic distance on bilateral trade is positive and significant, statistically. Hence, it can be concluded that countries that are adjacent to each other or have common currency would strengthen the trade between themselves, by creating monetary unions. In addition, the results indicate that the effect of other variables based on spatial econometric approach, GDP and trade openness -in three spatial matrices-had a positive and significant effect on bilateral trade. The exchange rate had a negative and significant effect on the geographical distance matrix and it had no effect on bilateral trade (in the common currency matrix and the modified currency matrix).

Keywords: Monetary Union; Spatial Econometrics; Common Currency; Bilateral trade; Spatial Pane (search for similar items in EconPapers)
Date: 2018-01
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Published in Journal of Applied Economics and Business Research, 2018, 8 (4), pp.206-216

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03572516

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