Agriculture, Currency union, Gravity equation, International trade, Manufacturing
Andrew Rose has long argued that a common currency has a large effect on increasing trade. Recently, Rose has called into question the reliability of this conclusion, as new techniques have emerged for estimating gravity equations. This article uses the sector-specific gravity model developed by Anderson and Yotov (2010a) to investigate if disaggregated trade can provide a reliable estimate of a common currency’s effect. Disaggregating trade alone is insufficient to obtain a reliable estimate of a currency union, regardless of econometric technique, when the effect of a common currency on trade is uniform across all unions. Disaggregating the universe of currency unions with individual effects provides a reliable ranking of currency unions, independent of estimation method, by the effect that each union’s currency has on increasing trade. These rankings differ across sectors.
© 2016 International Association of Agricultural Economists
Accepted Author Manuscript
Whitten, G. W. (2016) Disaggregated trade and disaggregated currency unions: a ranking of common currency effects. Agricultural Economics, 47(6), 661-670. DOI: 10.1111/agec.12263