Stylized Facts on Bilateral Trade and Currency Unions: Implications for Africa
IMF Working Papers, January 1, 2006
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Bibliographic details
- Authors: Michal Hulej, Charalambos G Tsangarides, Pierre Ewenczyk
- Published: January 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862911.001
Methodology and scope
- Uses an augmented version of the gravity model.
- Focuses on two samples: the world and Africa.
- Empirical approach quantifies aspects of performance of currency unions.
Key empirical findings
- In principle, membership in a currency union should benefit Africa as much as it does the rest of the world.
- The effect of currency unions on trade is large, "almost a doubling".
- Currency unions are associated with trade creation.
- Currency unions increase price co-movements among members.
- Currency unions make trade more stable.
- Longer duration of currency union membership brings about more benefits, although with some diminishing returns.
Implications for policy and analysis
- Adoption or deeper integration in currency unions can be expected to materially increase bilateral trade volumes for African countries, similar to global patterns.
- Policies that support sustained, long-term membership in currency unions may amplify trade and stability benefits, while recognizing diminishing returns over time.
- Monitoring price co-movements among members is important for assessing synchronization effects and potential transmission of shocks.
- The trade-creation and stabilization effects of currency unions should be considered alongside other macroeconomic and institutional factors when evaluating currency-union proposals for African economies.
Source: Stylized Facts on Bilateral Trade and Currency Unions: Implications for Africa, IMF Working Paper.