When Do Currency Unions Increase Trade?

2014 ◽  
Vol 14 (1) ◽  
pp. 113-125
Author(s):  
Amr Sadek Hosny
Keyword(s):  
International Trade ◽  
Treatment Effect ◽  
Bilateral Trade ◽  
Previous Literature ◽  
Currency Unions ◽  
Common Currency ◽  
Empirical Fact ◽  
Heterogeneous Effects ◽  
Trade Distribution ◽  
Quantile Treatment Effect

A stylized empirical fact in the international trade literature is that currency unions increase trade. This “Rose effect” suggests that a country pair that shares a common currency will, on average, trade three times as much as countries that don’t. In this paper, I question whether currency unions have heterogeneous effects over the distribution of the trade variable. The motivation is that regressions reported in the previous literature give average effects, while common currencies can affect countries’ trade differently over the trade distribution. I build on the same gravity approach and dataset of Rose (2000) to allow easier comparison with existing literature and employ newly developed quantile treatment effect techniques to study what is happening at different quantiles of the trade distribution. Estimation results suggest significant amounts of heterogeneity in the effect of currency unions on bilateral trade.

scholarly journals Gravity and Heterogeneous Trade Cost Elasticities

2021 ◽  
Author(s):  
Natalie Chen ◽  
Dennis Novy
Keyword(s):  
International Trade ◽  
Bilateral Trade ◽  
Trade Agreements ◽  
Gravity Equation ◽  
Trade Costs ◽  
Currency Unions ◽  
Trade Cost ◽  
New Approach ◽  
Substantial Heterogeneity

Abstract 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 popular trade cost variables such as currency unions, trade agreements, and WTO membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost effects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

On The Determinants Of Currency Unions

2011 ◽  
Vol 5 (1) ◽  
Author(s):  
Alessandro Marchesiani
Keyword(s):  
Heritage Language ◽  
Bilateral Trade ◽  
Estimation Method ◽  
Currency Union ◽  
Geographical Distance ◽  
Currency Unions ◽  
Common Currency ◽  
Second Stage ◽  
Currency Area ◽  
Stage Estimation

This paper studies the determinants of currency union membership. Geographical distance, colonial heritage, language, sizes and bilateral trade between two countries as predictors of their propensity to adopt a common currency are accounted for. To deal with endogeneity, two-step probit estimation method is performed. The estimation results show that geography, colonial heritage, size, and speaking the same language predict monetary unions quite well. However, bilateral trade does not enter significantly in the second-stage estimation, thus revealing that bilateral transactions between two countries are not a useful indicator of their membership in a common currency area.

scholarly journals Sustaining Trade during COVID-19 Pandemic: Establishing a Conceptual Model Including COVID-19 Impact

2021 ◽  
Vol 13 (10) ◽  
pp. 5418
Author(s):  
Nashwan M. A. Saif ◽  
Jianping Ruan ◽  
Bojan Obrenovic
Keyword(s):  
International Trade ◽  
Bilateral Trade ◽  
Production Costs ◽  
Research Directions ◽  
Economic Distance ◽  
Conceptual Paper ◽  
Sudden Decrease ◽  
Further Development ◽  
Conceptual Research

The conceptual research aims to identify antecedents conducive to bilateral trade during the COVID-19 pandemic. Considering the relevance of bilateral trade for foreign policy and economy studies, there is a need for a renewed framework in times of extreme economic instability. As international commerce is essential for improving the country’s economy, we have examined how economic distance, population, trade percentage of GDP, exchange rate, and political changes interconnect and relate to COVID-19, influencing trade flows. This conceptual paper illustrates the likely impact of COVID-19 on international trade by exploring pandemics’ effects on standard trading parameters such as GDP, distance, policy stability, and population. We model the resulting shock as a multifaceted variable reflected in capital underutilization, manufacturing output decline, international trade costs inflation, production costs inflation, decrease in demand for certain services and shift from everyday needs towards activities that exclude the proximity between people, e.g., proclivity towards virtual market products. The sudden decrease in GDP and bilateral trade, as well as FDI, is amplified by further development of pandemics’ long-term consequences. We take COVID-19 to be a technological, financial, and policy shock significantly influencing international trade and economic development and argue that it will have a varying impact on diverse sectors and economies. The paper offers preliminary insight into the pandemic-related economics that are unfolding and deduce recommendations on positive changes in trading policy to fully leverage on arising trading opportunities and point to potential research directions.

scholarly journals The Effect of Corruption on International Trade: A Case Study of Indonesian Trade to Nine Countries

2018 ◽  
Vol 13 (1) ◽  
Author(s):  
Danang Ibnu Atsir ◽  
Sunaryati Sunaryati
Keyword(s):  
International Trade ◽  
Maximum Likelihood ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Panel Data Analysis ◽  
Random Effect ◽  
Likelihood Method ◽  
Geographical Distance ◽  
Pseudo Maximum Likelihood

Corruption is a form of abuse of ethical authority by public officials, which is divided into two parts: bribery and forced collection. The effect of corruption like bribes and illegal levies is widespread in the public sector. One interesting investigation is the effect of corruption on international trade. Corruption becomes a barrier in international trade, where corruption plays a role in the access of trade goods and services from within and abroad. Using the gravity model, the focus of this research was the effect of corruption on international trade by taking a case study of Indonesia’s bilateral trade with its nine largest export destination countries. Using panel data, analysis tools used in this research were common effect, fixed effect, random effect and poisson pseudo maximum likelihood (PPML). In this research, it was found that geographical distance variable in its fixed units caused the omitted variable so that the error term correlated with independent variables. In order to overcome the problem, poisson pseudo maximum likelihood method was used in performing regression gravity model with linear log form, so the omitted variable issue on the geographical distance can be eliminated. The results of this research concluded that corruption played a role in international trade through bureaucratic mechanisms of trade and investment licensing and the effect of corruption was more detrimental to exporters.Keywords:   Gravity Model, Corruption, International Trade, Poisson Pseudo Maximum Likelihood (PPML).

scholarly journals The Effects of Recognition of Foreign Education for Newly Arrived Immigrants

2019 ◽  
Vol 35 (4) ◽  
pp. 506-521 ◽  
Author(s):  
Andrey Tibajev ◽  
Carina Hellgren
Keyword(s):  
Human Capital ◽  
Treatment Effect ◽  
Fixed Effects ◽  
Heterogeneous Effects ◽  
Employment Probabilities ◽  
Credible Information ◽  
Foreign Education ◽  
Effect Heterogeneity ◽  
Formal Recognition ◽  
Official Recognition

Abstract We analyze the effects of formal recognition of foreign higher education on employment probabilities and earnings for newly arrived immigrants in Sweden. Prior research has found that immigrants have lower returns on education if it was acquired in the country of origin than if it was acquired in the host country. One reason for this is that foreign credentials work poorly as productivity signals and risk-averse employers avoid employees with credentials they do not fully understand. A formal recognition statement can help overcome this problem by providing credible information about the foreign education, thus reducing uncertainty. Data consists of immigrants who, within the first ten years of residence in Sweden, had their foreign degree formally recognized during 2007–2011. Using fixed effects regressions, we estimate the treatment effect of official recognition to be 4.4 percentage points higher probability of being employed, and 13.9 log points higher wage for those with employment. We also find considerable treatment effect heterogeneity across subcategories of immigrants from different regions of origin, with different reasons for immigration and who obtained recognition during different economic conditions. Our conclusions are that the mechanism of employer uncertainty is real, and that recognition does reduce it. But as the signal of foreign education becomes better, other mechanisms such as human capital transferability problems and quality differences, and the ability to use foreign human capital, become more salient, leading to heterogeneous effects.

scholarly journals International trade and endogenous standards: the case of GMO regulations

2012 ◽  
Vol 11 (3) ◽  
pp. 415-437 ◽  
Author(s):  
MAURO VIGANI ◽  
VALENTINA RAIMONDI ◽  
ALESSANDRO OLPER
Keyword(s):  
International Trade ◽  
Gravity Model ◽  
Bilateral Trade ◽  
Composite Index ◽  
Trade Flows ◽  
Agricultural Products ◽  
Approval Process ◽  
Bilateral Trade Flows ◽  
Gmo Regulation ◽  
Bilateral Differences

AbstractThis paper quantifies the effect of GMO regulation on bilateral trade flows of agricultural products. We develop a composite index of GMO regulations and using a gravity model we show that bilateral differences in GMO regulation negatively affect trade flows. This effect is especially driven by labeling, approval process, and traceability. Our results are robust to the endogeneity of GMO standards to trade flows.

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