Trade Effects of Currency Unions; Do Economic Dissimilarities Matter?
No 08/249, IMF Working Papers from International Monetary Fund
This paper provides a general equilibrium analysis of the trade effects of the formation of a currency union, and of its subsequent enlargement to include an economically dissimilar country. Furthermore, it investigates how economic dissimilarities among countries affect the magnitude of the trade effects fostered by a common currency. We show that sharing a common currency enhances the volume of bilateral trade among countries. However, the more economically dissimilar is an accession country, compared to the original members of a currency union, the smaller are the gains in trade that would follow the enlargement of a currency union.
Keywords: International trade; Monetary unions; Trade integration; Trade models; Currency Union, Enlargement, Economic Dissimilarities, Intra-industry Trade, bilateral trade, trade costs, member country, trade effects, patterns of trade, (search for similar items in EconPapers)
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