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Investigating the Benefits of a Currency Union to Trade: A Case Study on WAMZ Countries

Tamsir Cham ()
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Tamsir Cham: The Islamic Research and Teaching Institute (IRTI)

No 2016-2, Policy Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: This paper assesses the benefits of a currency union by using the West African Monetary Zone (WAMZ) and the traditional gravity model approach. This is the first investigative study on WAMZ’s impact on trade using a modified gravity model approach that incorporates the instability index, which characterizes the zone. This approach is useful in checking the impact of a single currency on trade enhancement and the impact of the instability index on economic growth. Using an Ordinary Least Squares (OLS) with different specifications of the gravity model and panel data set consisting of bilateral trade observations on 9 countries from 1980-2014, the empirical findings supported the hypothesis that currency unions do have a significant positive impact on trade flows. The results indicated that impact of the currency union on trade in the West African countries considered exceeds 20 percent. It therefore suffices to state that a currency union leads to trade enhancement.

Keywords: Currency Union; Gravity Model; Trade (search for similar items in EconPapers)
JEL-codes: E52 E63 F15 F43 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-01-01
New Economics Papers: this item is included in nep-int and nep-mac
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