Dennis Novy, the University of Warwick: Currency Unions, Trade, and Heterogeneity
Department seminar. Dennis Novy is an Assistant Professor of Economics at the University of Warwick. He will present a paper entitled "Currency Unions, Trade, and Heterogeneity", co-authored by Natalie Chen.
Dennis Novy. Photo: The University of Warwick
What is the effect of currency unions on international trade? This paper offers a new approach. We rely on a translog gravity equation that predicts variable trade cost elasticities, both across and within country pairs. While we estimate that currency unions are associated with a trade increase of around 38 percent on average, we find substantial underlying heterogeneity. Consistent with the predictions of our model, we find effects around three times as strong for country pairs associated with small import shares, and a zero effect for large import shares. Our results imply that conventional homogeneous currency union estimates do not provide helpful guidance for countries considering to join a currency union such as the euro.
Host: Inga Heiland