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Currency Union and Bilateral Trade: Evidence from OIC Countries

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  • Fegheh Majidi , Ali

    (University of Kurdistan)

Abstract

In recent years, there has been an increasing interest in currency unions internationally. The formation of currency union in Organization of Islamic Cooperation (OIC) has drawn much attention of Islamic countries. This paper aims to investigate the effect of currency union formation for trade among 49 Islamic countries over the period 1990-2012 by OCA and Augmented Gravity Model (AGM). The results show that common language, borders, and trade unions had positive and significant effect on trade in OIC countries; and being landlocked and distance between source and host countries had negative and significant effect on bilateral trade. Also, the currency union had positive and significant effects on trade in OIC countries. The evidence thus suggests that regional currency union arrangements stimulate bilateral trade in OIC rigorously.

Suggested Citation

  • Fegheh Majidi , Ali, 2014. "Currency Union and Bilateral Trade: Evidence from OIC Countries," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(2), pages 140-166, October.
    • Handle: RePEc:mbr:jmonec:v:9:y:2014:i:2:p:140-166
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    More about this item

    Keywords

    Currency Union; Augmented Gravity Model; OIC; OCA Theory;
    All these keywords.

    JEL classification:

    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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