Stylized Factson Bilateral Trade and Currency Unions

This paper explores and quantifies several aspects of the performance of currency unions using an augmented version of the gravity model and focusing on two samples, the world and Africa. Our empirical findings suggest that, in principle, membership in a currency union should benefit Africa as much as it does the rest of the world. In addition, we find evidence from both samples that the effect of currency unions on trade is large, almost a doubling; currency unions are associated with trade creation, increase price co-movements among members, and make trade more stable; and longer duration of currency union membership brings about more benefits, although with some diminishing returns.Trade;Bilateral trade;Economic models;samples, equation, free trade, statistics, trade creation, trade diversion, logarithm, dummy variable, trade agreements, monetary union, terms of trade, regional trade, free trade agreements, world trade, sensitivity analysis, trade effects, monetary unions, free trade area, trade arrangements, asymmetric shocks, trade area, trade agreement, survey, international trade, trade flows, instrumental variable, instrumental variables, standard deviation, world trade organization, economic integration, trade patterns, trade shocks, trading partners, volume of trade, trade values, trade areas, terms of trade shocks, equations, increased trade, free trade areas, world economy, increasing integration, interest groups, trade volume, missing observations, cross section analysis, regional trade arrangements, trade theories, trade performance, free trade arrangements, confidence intervals, trading patterns, neighboring countries, importing countries, sample selection, transport costs, economic community, political decisions, global markets, estimation technique, free trade agreement, trade openness, regional trade agreements, exchange rate risk, perturbations, statistical significance, trade policies, exchange rate regimes, optimum currency areas, commodity prices, trade impact, estimation of equation, impact of trade, time series, correlation, increasing trade, dummy variables, econometrics, open economies, common market, low trade, value of trade, trade data, trade flow