The Currency Union Effect on Trade: Early Evidence from Emu

48 Pages Posted: 25 Apr 2011

See all articles by Alejandro Micco

Alejandro Micco

University of Chile

Ernesto Stein

Inter-American Development Bank (IDB)

Guillermo Luis Ordoñez

affiliation not provided to SSRN

Date Written: July 2003

Abstract

In this paper we estimate the early effect of the European Monetary Union (EMU) on trade. We use a panel data set that includes the most recent information on bilateral trade for 22 developed countries from 1992 through 2002. During this period 12 European countries formally entered into a currency union. This is a unique event that allows us to study the effect of currency union among a relatively homogeneous group of industrial countries. Controlling for a host of other factors, we find that the effect of EMU on bilateral trade between member countries ranges between 5 and 10 percent, when compared to trade between all other pairs of countries, and between 9 and 20 percent, when compared to trade among non-EMU countries. In addition, we find no evidence of trade diversion. If anything, our results suggest that monetary union increases trade not just with EMU countries, but also with the rest of the world.

Suggested Citation

Micco, Alejandro and Stein, Ernesto Hugo and Ordoñez, Guillermo Luis, The Currency Union Effect on Trade: Early Evidence from Emu (July 2003). IDB Working Paper No. 412. Available at SSRN: https://ssrn.com/abstract=1818701 or http://dx.doi.org/10.2139/ssrn.1818701

Alejandro Micco (Contact Author)

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Ernesto Hugo Stein

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States

Guillermo Luis Ordoñez

affiliation not provided to SSRN

No Address Available

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