Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering 217 countries from 1948 through 1997. During this sample a large number of countries left currency unions; they experienced economically and statistically significant declines in bilateral trade, after accounting for other factors. Assuming symmetry, we estimate that a pair of countries that starts to use a common currency experiences a near doubling in bilateral trade.
About the Authors
Reuven Glick is a group vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Reuven Glick