To study the effect of the euro on international goods trade one typically estimates a panel model for the level of trade. Trade levels increase over time, and we show that this is not fully explained by the included regressors. Because the euro is only present at the end of the sample, this may...

This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the...

Member countries of a currency union like the euro area have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional microeconomic trade...

This study investigates the effect of currency union membership on foreign direct investment inflow to ECOWAS subregion. The study employed panel dynamic ordinary least square (DOLS) to estimate a panel data of fifteen ECOWAS countries from 1995 to 2010 with the framework of the gravity model....

Does leaving a currency union reduce international trade? This paper reexamines time series estimates of currency unions on trade from a historical perspective using a dynamic gravity equation and by conducting in-depth case studies of currency union breakups. The early large estimates are...

Empirical research on the gravity model of international trade in the wake of Rose (2000) affirms that currency union formation doubles or triples trade. However, currency unions could also be established precisely because trade among their members was already high. In OLS estimation, this would...

The consensus back in 2008 – ten years after the introduction of the euro – was that the adoption of a common currency had made a limited impact of around 2% in total on the trade flows of the first wave of euro area countries (Baldwin et al., 2008). Since then, six more countries have...

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to the effect of currency unions on international trade. While we...

This paper reconsiders recent empirical evidence found by Andrew Rose that countries adopting a common currency will triple their bilateral trade. We find that this large estimated effect is due to estimation bias arising from missing and/or misspecified time-invariant factors, rather than to...

This paper revisits the link between exchange rate regimes and trade in the context of Africa's exchange rate arrangements. Applying an augmented gravity model that includes measures of currency unions and pegged regimes, the paper compares Africa's experience with that of the world. Our results...