The effect of common currencies on trade
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Authors
Szebeni, Katalin
Issue Date
2009-08-25T10:50:05Z
Type
Dissertation
Language
en
Keywords
Meta-analysis , Endogeneity , Gravity model , Exchange rate volatility , Trade , Dollarization , Currency union , Optimum currency area
Alternative Title
Abstract
The theory of optimum currency areas states that the more two countries trade with each other, the better candidates they are for a currency union. In terms of the endogeneity argument, convergence follows from joining a currency union and the integration process itself turns the countries into optimal currency areas. The potential increase in trade is regarded as one of the most important benefits of a currency union. Indirect evidence from studies on the effect of exchange rate volatility on trade does not support this claim. Rose argues that the common currency effect on trade is separate from the effect of the elimination of exchange rate variability and finds a large positive effect of a currency union on trade. Although his methodology has met with criticism, most studies find a positive estimate. A meta-analysis of the studies confirms that a common currency has a statistically and economically significant trade-creating effect.
Description
Citation
Szebeni, Katalin (2009) The effect of common currencies on trade, University of South Africa, Pretoria, <http://hdl.handle.net/10500/1155>