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An Estimate Of The Effect Of Common Currencies On Trade And Income

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Jeffrey Frankel
Andrew Rose

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Abstract

To quantify the implications of common currencies for trade and income, we use data for over 200 countries and dependencies. In our two-stage approach, estimates at the first stage suggest that belonging to a currency union/board triples trade with other currency union members. Moreover, there is no evidence of trade diversion. Our estimates at the second stage suggest that every 1 percent increase in a country's overall trade (relative to GDP) raises income per capita by at least one-third of a percent. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that important beneficial effects of currency unions come through the promotion of trade. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 117 (2002)
Issue (Month): 2 (May)
Pages: 437-466
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Handle: RePEc:tpr:qjecon:v:117:y:2002:i:2:p:437-466

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Working Papers 3702, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
  5. Sebastian Edwards, 1993. "Trade Policy, Exchange Rates and Growth," NBER Working Papers 4511, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May. [Downloadable!] (restricted)
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  7. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-93, September. [Downloadable!] (restricted)
  8. Fischer, S., 1991. "Growth, Macroeconomics, and Development," Working papers 580, Massachusetts Institute of Technology (MIT), Department of Economics.
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