to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

is the cfa franc zone an optimum currency area summary in this paper we explore the features of the cfa franc zone and compare them to those of the economic and monetary union emu by operationalizing the criteria for an optimum currency area a structural vector autoregression method is used in modeling national outputs as determined by global regional and country specific shocks we find that domestic outputs of the cfa franc zone countries are strongly influenced by country specific shocks while regional shocks are far more important in european countries that have joined the emu the results suggest that the cfa franc zone countries are structurally different from each other and thus are more likely to be subjected to asymmetric shocks they do not appear to form an optimum currency area and the monetary union may have been a costly arrangement for the member countries unless they are compensated with some other benefits

bilateral trade and the eurozone evidence from new member countries the question of whether and how much currency unions increase bilateral trade among their members has garnered much attention since rose s seminal article the answer is as pertinent now as ever for both the eurozone s existing and future members as the financial crisis shook the very foundations of the european monetary union emu and brought its shortcomings into the spotlight this paper analyses the issue using the gravity equation with country pair and time fixed effects for a sample of the four new members of the emu slovakia slovenia malta and cyprus which has to the author s knowledge not been studied thus far due to their recent joining and controls drawn from the european union this paper finds a positive relationship between joining the emu and trade with emu partners but not with non emu partners

estimating the effects of free trade agreements on international trade flows using matching econometrics abstract this paper provides the first cross section estimates of long run treatment effects of free trade agreements on members bilateral international trade flows using nonparametric matching econometrics our nonparametric cross section estimates of ex post long run treatment effects are much more stable across years and have more economically plausible values than corresponding ols cross section estimates from typical gravity equations we provide plausible estimates of the long run effects of membership in the original european economic community eec and the central american common market cacm between 1960 and 2000 and the estimates confirm anecdotal reports of these agreements effectiveness

friedman redux external adjustment and exchange rate flexibility milton friedman argued that flexible exchange rates facilitate external adjustment recent studies find surprisingly little robust evidence that they do we argue that this is because they use composite multilateral exchange rate regime classifications which often mask heterogeneous bilateral relationships between countries constructing a novel bilateral exchange rate regimes data set for 181 countries over 1980 2011 we find a statistically strong relationship between exchange rate flexibility and the speed of external adjustment our results are supported by several natural experiments of exogenous changes in bilateral exchange rate regimes and by monte carlo simulations which show that tests based on standard multilateral regime classifications tend to have low statistical power

de facto exchange rate arrangement tightness and bilateral trade flows abstract this paper estimates the effect of switching into and out of 14 different modes of exchange rate arrangements on bilateral exports between 1948 and 2001 in the world economy increasing the exchange rate arrangement tightness by one degree in the classification of reinhart and rogoff reinhart carmen m and kenneth s rogoff 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics 119 1 48 increases bilateral trade flows by about 2 4 as compared to their initial level

contributions to canadian economic history the last 30 years the cliometric revolution that transformed economic history in the us in the 1960s was soon embraced by canadian economic historians many of the important issues surrounding canadian development remained the same the role of resources the place of international trade immigration capital accumulation and interactions with native americans among others but beginning in the 1960s and certainly over the last 30 years economic historians of canada have addressed them with the tools of modern economics both theoretical and empirical we highlight the recent work emphasizing not just the methods but also the fundamental ways our understanding of canadian history has been changed

workers of the world unite franchise extensions and the threat of revolution in europe 1820 1938 abstract we test the hypothesis that the extension of the voting franchise in europe was related to the threat of revolution we contend that international diffusion of regime contention and information about revolutionary events happening in neighboring countries generate the necessary variation in the perceived threat of revolution using two samples of european countries covering the period from 1820 to 1938 we find robust evidence which is consistent with the threat of revolution hypothesis we also find some evidence that war triggered suffrage reform

trade creation and diversion revisited accounting for model uncertainty and natural trading partner effects summary the effect of preferential trade agreements ptas on trade flows is subject to model uncertainty stemming from the diverse and even contradictory effects suggested by the theoretical pta literature the existing empirical literature has produced remarkably disparate results and the wide variety of empirical approaches reflects the uncertainty about the correct set of explanatory variables that ought to be included in the analysis to account for the model uncertainty that surrounds the validity of the competing pta theories we introduce bayesian model averaging bma to the pta literature statistical theory shows that bma successfully incorporates model uncertainty in linear regression analysis by minimizing the mean squared error and by generating predictive distributions with optimal predictive performance once model uncertainty is addressed as part of the empirical strategy we find strong evidence of trade creation trade diversion and open bloc effects our results are robust to a range of alternative empirical specifications proposed by the recent pta literature copyright 2010 john wiley sons ltd

trade blocs currency blocs and the reorientation of world trade in the 1930s we analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s we report evidence that commercial policies attenuated prior connections between income growth and trade and that exchange rate instability marginally discouraged international trade in contrast the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s this reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years

threshold models of interpersonal effects in consumer demand abstract whether one buys may be determined in part by how many others have when the correlation is positive we refer to bandwagon effects and when negative reverse bandwagons we construct demand schedules in the presence of such effects and with simple assumptions about supply investigate the existence of and approach to equilibrium stable price quantity equilibria exist but for many plausible parameter values equilibria are asymptotically unstable and system trajectories consist of cycles that can move with slight parameter changes via successive bifurcations into what has been called chaotic dynamics essentially indistinguishable from random noise these conditions occur despite assumptions of erfect information profit maximizing firms and utility maximizing individuals

the effects of exchange rate volatility on agricultural trade i extend cho sheldon and mccorriston s 2002 analysis of the effect of exchange rate volatility on agricultural trade among the g 10 countries to a broad sample of developed and developing nations i replicate their original finding that exchange rate volatility has a large negative impact on agricultural trade between g 10 members after controlling for agricultural export subsidies which are correlated with exchange rate volatility i show that the original impact declines by half using the extended sample i find that the effect of exchange rate volatility is much larger for developing country exporters than for developed exporters copyright 2008 oxford university press

e m u effects in global cross border banking we demonstrate that the european monetary union emu increases cross border depositing but not lending among emu countries by 31 while being a member of the european union eu increases cross border loans by 49 cross border deposit volumes are unaffected

institutions in international relations understanding the effects of the gatt and the wto on world trade the general agreement on tariffs and trade gatt and the world trade organization wto have been touted as premier examples of international institutions but few studies have offered empirical proof this article comprehensively evaluates the effects of the gatt wto and other trade agreements since world war ii our analysis is organized around two factors institutional standing and institutional embeddedness we show that many countries had rights and obligations or institutional standing in the gatt wto even though they were not formal members of the agreement we also expand the analysis to include a range of other commercial agreements that were embedded with the gatt wto using data on dyadic trade since 1946 we demonstrate that the gatt wto substantially increased trade for countries with institutional standing and that other embedded agreements had similarly positive effects moreover our evidence suggests that international trade agreements have complemented rather than undercut each other an earlier version of this article was presented at the 99th annual meeting of the american political science association philadelphia august 28 31 2003 we thank tim buthe joanne gowa miles kahler andrew rose arthur stein richard steinberg and seminar participants at stanford university the university of chicago pipes the university of california los angeles the university of california san diego and the university of virginia for many helpful comments we especially thank claire adida ashley conner moonhawk kim erin krampetz james morrison mike nardis natan sachs rachel rubinfeld and jessica weeks for excellent research assistance we are grateful for financial support from the national science foundation career grant ses 0548285 to tomz the stanford center for international development and the vice provost for undergraduate education at stanford

the internationalization of inventive activity a gravity model using patent data this paper discusses the extent and the determinants of the internationalization of european inventive activity between 1990 and 2004 using an innovative method to treat the information contained in the european patent office s patstat database the observed level of internationalization of inventive activities while being rather low has steadily increased over time the amount of collaboration between actors residing in different countries is assessed by means of a gravity model as it is familiar in the literature on international trade the amount of bilateral collaboration is positively affected by the presence of a common language and a common border and by the common participation in the european union participation in the euro zone is also found to have a marginally negative effect international collaboration is negatively affected by distance with estimated elasticities that are significantly smaller than the ones that characterize international trade contrary to the rumors about the death of distance this effect has become stronger in recent years

the benefits and costs of monetary union in southern africa a critical survey of the literature with the 14 members of the southern african development community sadc having set the objective of adopting a common currency for the year 2018 an expanding empirical literature has emerged evaluating the benefits and costs of a common currency area in southern africa this paper reviews that literature focusing on two categories of studies 1 those that assume that a country s characteristics are invariant to the adoption of a common currency and 2 those that assume that a monetary union alters an economy s structure resulting in trade creation and credibility gains the literature reviewed suggests that a relatively small group of countries typically including south africa satisfies the criteria necessary for monetary unification the literature also suggests that in a monetary union comprising all sadc countries and a regional central bank that sets monetary policy to reflect the average economic conditions e g fiscal balances in the region the potential losses i e higher inflation from giving up an existing credible national central bank a relevant consideration for south africa could outweigh any potential benefits of trade creation resulting from a common currency

evaluation of currency regimes the unique role of sudden stops this paper tackles two established puzzles in international macroeconomics literature the first is the lack of systematic differences in the macroeconomic performance across exchange rate regimes the second is the absence of a clear empirical relationship between macroeconomic performance and capital account liberalization we suggest that these negative findings may be due to empirical methods that fail to account for a latent economic crisis state influenced by exchange rate and capital account regimes and to allow that latent variable to influence the growth effects of policy regimes in practice we model and estimate the latent state of the economy as a crisis probability our proposed framework of analysis allows exchange rate and capital market liberalization regimes to have both a direct effect on short term growth and an indirect effect on growth that is channelled through their effects on the crisis probability the empirical decomposition of the total effect into two conflicting effects helps resolve the puzzles assaf razin and yona rubinstein

the nonlinear impact of currency unions on bilateral trade abstract most gravity model specifications assume that a currency union varies the level of bilateral trade between members by a constant proportion we demonstrate that a common currency also alters the slope of the relationship between bilateral trade and member country gdps

regionalism in standards good or bad for trade regional agreements on standards have been largely ignored by economists and unconditionally blessed by multilateral trade rules the authors find theoretically and empirically that such agreements increase trade between participating countries but not necessarily with the rest of the world adopting a common standard in a region that is harmonization boosts exports of excluded industrial countries to the region but it reduces exports of excluded developing countries possibly because developing country firms are hurt more by an increase in the stringency of standards and benefit less from economies of scale in integrated markets mutual recognition agreements are more uniformly trade promoting unless they contain restrictive rules of origin in which case intra regional trade increases at the expense of trade with other especially developing countries the authors propose a modification of international trade rules to strike a better balance between the interests of integrating and excluded countries

on the distribution of exchange rate regime treatment effects on international trade abstract this paper provides evidence of heterogeneous treatment effects on trade for six different types of exchange rate regime transitions utilizing data on 218 643 country pair year observations all together previous research mainly focused on the currency union effect on trade and widely assumed that country pairs with identical observable characteristics receive the same effect we test the hypothesis of a homogeneous treatment effect empirically and find substantive statistical support for the presence of effect heterogeneity moreover we characterize the probability distribution of effect heterogeneity among observationally equivalent country pairs by way of a random coefficients model we estimate selected features of the empirical distributions of the treatment effects for each of the six different types of exchange rate regime transitions under two different sets of assumptions about the probability distribution of effect heterogeneity our findings suggest that the immediate effects on trade from switching to an exchange rate regime different from the one in the outset have wide waists and exhibit large positive extreme values we estimate the probability of two countries to experience an immediate positive effect on the growth of bilateral trade due to the adoption of any new exchange rate regime tighter or not to be approximately one half

disaggregated trade and disaggregated currency unions a ranking of common currency effects 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

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

estimating the impact of currency unions on trade solving the glick and rose puzzle does leaving a currency union reduce international trade this paper uses a historical approach to re examine the puzzling large apparent impact of currency unions on trade i find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors including warfare communist takeovers and ethnic cleansing episodes my methodology which carries lessons for other uses of gravity equations in policy analysis yields point estimates of currency unions on trade that are not statistically distinct from zero

no price like home global house prices 1870 2012 how have house prices evolved in the long run this paper presents annual house price indices for 14 advanced economies since 1870 based on extensive data collection we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid 20th century but rose sharply in recent decades land prices not construction costs hold the key to understanding the trajectory of house prices in the long run residential land prices have surged in the second half of the 20th century but did not increase meaningfully before we argue that before world war ii dramatic reductions in transport costs expanded the supply of land and suppressed land prices since the mid 20th century comparably large land augmenting reductions in transport costs no longer occurred increased regulations on land use further inhibited the utilization of additional land while rising expenditure shares for housing services increased demand

relational goods and participation incorporating sociability into a theory of rational action theoretical explanations of why rational individuals would participate in politics remain unsatisfactory this paper addresses the problem by developing and analyzing models which include among citizens payoffs relational goods objectives which depend upon interactions among persons the models predict more participation than do the standard approaches for example under some circumstances persons will be more likely to act if they believe others will act contrary to free rider logic more importantly conditions are identified under which leaders could increase mass activity thus a model is provided of mobilization in terms of the preferences and decisions of a rational individual

monetary union price level convergence and inflation how close is europe to the usa abstract the pattern of price dispersion across european and us cities from 1990 to 2004 is documented there is a striking decline in dispersion for traded goods prices in europe most of which took place prior to the launch of the euro dispersion in the euro area is now quite close to that of the usa this evidence provides useful facts for future work assessing the importance of various developments in europe harmonization of tax rates convergence of incomes and labor costs liberalization of trade and factor markets and increased coherence of monetary policy

international portfolio reallocation diversification benefits and european monetary union abstract we investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries spanning over two sample periods 1997 2001 and 1997 2005 we find that the strongest drivers are the marginal diversification benefits arising from the pure asset component and the initial degree of underweight this evidence suggests that global portfolio reallocations over the asset boom and bust period were determined by optimal diversification considerations we also find that due to economic and monetary union emu the weight assigned by euro area investors to investment in euro area countries increased significantly in equity and fixed income portfolios with a trade diverting effect against the british bond market

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

price advertising and the deterioration of product quality arguments in favour of self enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality this being the case it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product this paper shows that even if price can communicate no information directly about quality it can do so indirectly because price will be a signal of quality because of this allowing advertising is shown to improve consumer welfare

bru u u uce the simple economics of mob goods this paper provides a pure economic rationale for chronic excess demand for tickets to events like rock concerts the model focuses on mob goods which are consumed jointly with crowd reaction or noise whereas the primary commodity is provided by the seller the joint product is provided collectively by buyers if propensities to make noise are inversely correlated with reservation prices and a capacity constraint applies excess demand queuing is a necessary condition for profit maximization one important implication is that anti scalping laws may be welfare increasing the paper explores other applications in professional sports restaurants and on stage theatre

factor price convergence in the late nineteenth century the authors examine a dramatic historical episode of factor price convergence in the late nineteenth century their focus is convergence between old world and new and the analysis centers on land and labor wage rental ratios boomed in the old world and collapsed in the new moving the resource rich labor scarce new world closer to the resource scarce labor abundant old world the authors use econometrics and simulations to identify proconvergence forces which include commodity price convergence factor accumulation and factor saving biases the results confirm that open economy characteristics and international market integration are important sources of convergence copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

the euro and corporate valuations in this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in europe we use corporate level data from seventeen european countries of which eleven adopted the euro we show that the introduction of the euro has increased tobin s q ratios by 17 1 in the euro area countries that previously had weak currencies part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity the increases in tobin s q are larger for firms that would be harmed by currency devaluations the author 2008 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

trade costs 1870 2000 what has driven trade booms and trade busts in the past century and a half was it changes in global output or in the costs of international trade to address this question we derive a micro founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods these trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods thus we are able to estimate the combined magnitude of tariffs transportation costs and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe we use this measure to examine the growth of global trade between 1870 and 1913 its retreat from 1921 to 1939 and its subsequent rise from 1950 to 2000 we find that trade cost declines explain roughly 55 percent of the pre world war i trade boom and 33 percent of the post world war ii trade boom while a precipi tous rise in trade costs explains the entire inter

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

global trade and the maritime transport revolution abstract what is the role of transport improvements in globalization we argue that the nineteenth century is the ideal testing ground maritime freight rates fell on average by 50 while global trade increased 400 from 1870 to 1913 we estimate the first indices of bilateral freight rates and directly incorporate these into a standard gravity model we also take the endogeneity of bilateral trade and freight rates seriously and propose an instrumental variables approach the results are striking we find no evidence that the maritime transport revolution was the primary driver of the late nineteenth century global trade boom

the mirage of exchange rate regimes for emerging market countries this paper argues that much of the debate on choosing an exchange rate regime misses the boat it begins by discussing the standard theory of choice between exchange rate regimes and then explores the weaknesses in this theory especially when it is applied to emerging market economies it then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits the conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal financial and monetary institutions in producing macroeconomic success in emerging market countries this suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable and more on these deeper institutional arrangements a focus on institutional reforms rather than on the exchange rate regime may encourage emerging market countries to be healthier and less prone to the crises that we have seen in recent years

an optimum currency area odyssey abstract the theory of optimum currency areas was conceived and developed in three highly influential papers written by mundell 1961 mckinnon 1963 and kenen 1969 those authors identified characteristics that potential members of a monetary union should ideally possess in order to make it feasible to surrender a nationally tailored monetary policy and the adjustment of an exchange rate of a national currency we trace the development of optimum currency area theory which after a flurry of research into the subject in the 1960s was relegated to intellectual purgatory for about 20 years we then discuss factors that led to a renewed interest into the subject beginning in the early 1990s milton friedman plays a pivotal role in our narrative friedman s work on monetary integration in the early 1950s presaged subsequent optimum currency area contributions mundell s classic formulation of an optimal currency area was aimed in part at refuting friedman s strong case for floating exchange rates and friedman s work on the role of monetary policy had the effect of helping to revive interest in optimum currency area analysis the paper concludes with a discussion of recent analytical work using new keynesian models which has the promise of fulfilling the unfinished agenda set out by the original contributors to the optimum currency area literature that is providing a consistent framework in which a country s characteristics can be used to determine its optimal exchange rate regime

the unconditional most favored nation clause and the maintenance of the liberal trade regime in the postwar 1870s international institutions within the past thirty years become the subject of renewed interest as scholars vigorously dispute their utility neorealists draw on the post world war ii era to advance sweeping general claims of institutional inefficacy this study by contrast deploys the same hard test method grieco applied to the 1970s tokyo round negotiations to the crisis rife 1870s to construct a unique methodological objective a rigorous hard test of nineteenth century institutional autonomy three principal findings emerged first the maintenance of a liberal world economy in the turbulent 1870s is explained by an unlikely commercial instrument and the unprecedented regime design of an unexplored international institution respectively the unconditional most favored nation mfn clause and the informal conventional tariff system cts regime it underpinned not british hegemony second the international trade regime was not a public good unilaterally provisioned by hegemonic britain via the 1846 corn laws repeal the regime was instead a private good that was collectively provisioned by all its constituent member states via the unprecedented interstate practices institutionalized in the 1860 cobden chevalier treaty and then autonomously maintained by a negarchical and self enforcing sanctioning mechanism finally the informal cts regime s enforcement mechanism autonomously altered the interests and behaviors of states in directions incongruent with executive preferences solely through the brute force of rational calculations imposed by decentralized international institutional constraints both the french and british executives in the 1870s believed the regime was normatively inappropriate and unsuccessfully attempted to exit amid eight system threatening crises nonetheless the mfn based regime s self enforcing sanctioning mechanism autonomously induced compliance conceptualized as unitary states behavior deviating from executives first order preference the extraordinarily turbulent 1870s therefore provide an unexplored historical vantage point to make strong institutionalist claims in an era issue area and under conditions that they are least likely to be validated

do wto members have more liberal trade policy abstract this paper uses 68 measures of trade policy and liberalization to ask if membership in the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt is associated with more liberal trade policy almost no measures of trade policy are significantly correlated with gatt wto membership trade liberalizations when they occur usually lag gatt entry by many years and the gatt wto often admits countries that are closed and remain closed for years the exception to the rule is that wto members tend to have slightly more freedom as judged by the heritage foundation s index

real exchange rates and time varying trade costs this paper re examines the empirical modeling of purchasing power parity ppp deviations in the presence of commodity market frictions first we show that a specific type of smooth transition models can closely approximate the functional form of the theoretical adjustment mechanism derived by dumas 1992 dynamic equilibrium and the real exchange rate in a spatially separated world review of financial studies 5 2153 180 for the case of constant as well as changing trade costs second we develop for the first time an empirical model of the real exchange rate which allows for changes in the degree of market integration by employing a long span of data on the dollar sterling real exchange rate and a micro founded proxy for trade frictions we provide novel evidence of a significant relationship between the persistence of the real exchange rate and the level of trade costs this finding suggests that both the difficulty of detecting ppp and the extend of rogoff s puzzle vary over time with the degree of trade restrictiveness finally we highlight policy repercussions of our results

financial integration gdp correlation and the endogeneity of optimum currency areas the paper analyses the relationship between trade financial integration and business cycle synchronization in the euro area the introduction of the euro has had a noticeable impact on european financial markets evidence that capital market integration exerts a positive effect on output correlation has two major implications first it corroborates the hypothesis of the endogeneity of optimum currency areas whereby after joining a monetary union countries better meet standard oca criteria second it provides european policy makers with yet another reason to pursue financial integration in the euro area and in prospective members as well

games of monetary and fiscal interactions in the emu abstract this paper constructs various models of the emu and ecb when member countries have different objectives voting in pursuit of national interest can yield moderate and stable inflation the metaphor of walsh type contracts implements a monetary policy rule that averages the member countries most preferred rules in a repeated relationship where a country suffering a large adverse shock can use political bargaining to subvert the ecb s commitment the optimal rule should incorporate some flexibility to forestall that finally freedom of national fiscal policies undermines the ecb s monetary commitment this may justify fiscal constraints like the stability and growth pact

endogenous oca analysis and the early euro experience some have argued that the endogenous responses to the formation of a currency area are so strong that one need not worry about optimum currency area conditions ex ante we argue that this is much too strong a conclusion we draw on a number of recent studies to evaluate the endogeneity experiences of the eurozone in three major areas trade flows business cycle synchronisation and structural reforms to improve labour and product market flexibility simple before and after comparisons are insufficient for analysis of endogeneity the experiences of non euro western european economies suggest that broader trends also had considerable influence on trade and business cycle patterns while trade rose substantially within the eurozone it also rose with and among other european economies we argue that political economy considerations tend to dampen the magnitude of endogeneity efforts on structural reforms and that meeting conditions for entry may be a more powerful mechanism in this than are subsequent endogenous responses we also discuss a number of areas for further research

trade and climate policies do emissions from international transport matter this paper provides orders of magnitude of the importance of co2 emissions from international transport freight activities under a variety of scenarios regarding trade and climate policies it is based on a stylized multi region multi sector cge model that includes the four modes of international transport air water road and rail and where choices regarding the energy mix and transport mode have been endogeneized a separate decomposition of emission changes into the well known scale composition and technique effects is provided scale effects turn out to be roughly double in international transport than in exports while technique effects are weaker due to less substitutability between energy inputs as a result international transport represents half of the world increase in global emissions when trade liberalization is considered isolately when trade liberalization is coupled with a carbon tax limited to rich countries international transport represents roughly one eigth of the carbon leakage effect

can high prices ensure product quality when buyers do not know the sellers cost timothy j perri i introduction when consumers are unaware of product quality before they buy producers can nonetheless be punished for providing low quality by losing repeat business klein and leffler 1981 demonstrate that under fairly general conditions a price with a positive profit margin is needed to induce producers to deliver the promised quality level if the profit margin were zero the profit would be greater from low quality than from high even if the customers were disappointed and none of them returned consequently if a firm s price equaled its cost repeat business would be a matter of indifference a higher price however increases long run profit more for firms that provide the promised quality because such firms benefit from the repeat business of satisfied customers at a sufficiently high price the profit from repeat business exceeds the profit from cheating on quality at that price firms will provide the promised quality level 1 two points are of interest in the klein leffler model first absent firm specific capital expenditures positive profit exists in a competitive market second because consumers know the price is an incentive for high quality only if it generates sufficiently high profit they must know the firm s production costs if a given price premium is to ensure high quality we address both points in this article first although it is sometimes thought that non price competition will dissipate profits in the klein leffler model the model does not by itself have that implication positive profit will indeed persist in equilibrium even with free entry unless some new feature is added second while the klein leffier model assumes producers have identical costs though they can choose different quality levels we will add the possibility firms differ in their marginal costs of high quality in ways buyers cannot observe thus we combine moral hazard and adverse selection in a product quality model we hope to accomplish two things to explain how positive profits can persist in the original klein leffler model and to show that adding adverse selection can result in profit dissipation let us explain further before setting out the model first profit dissipation by non price competition lies outside the klein leffler model in that model information is complete buyers know only one type of firm exists but do not know product quality when they purchase a good 2 thus moral hazard is possible firms may deliver quality that is less than what they promised a price p sup above average cost p sub c is necessary to induce firms to deliver the high level of quality they promise to consumers entry cannot eliminate the resulting profit since additional output will drive price below the quality assuring level of p sup this is a surprising result an industry known to earn positive profit without collusion or conventional barriers to entry and yet without expanded output or entry 3 klein and leffler suggest that non price competition will dissipate this profit they realize that non price competition cannot reduce the operating margin by driving average cost per period up closer to price but they suggest that some kind of fixed cost might absorb the profit competition to dissipate the economic profits earned by existing firms must therefore occur in nonprice dimensions the competition involves firm specific capital expenditures klein and leffler 1981 626 such thinking comes naturally to economists we hold the maxim that markets abhor a profit as dearly as physics does nature abhors a vacuum non price competition would occur if each firm could increase profit via such behavior even though the net effect of many firms doing it would dissipate profit such is the case with a cartel where each cartel member can do better if it cheats on the collusive agreement using secret price cuts or non price competition that tends to drive profit to zero

long run growth and volatility which source really matters the aim of the article is to analyse the relationship between long run growth and business cycle volatility in particular the main purpose of this article is to identify which source of volatility is most detrimental to growth using cross country data from 1970 to 2000 and several indicators of volatility such as inflation exchange rate government expenditure output and investment volatility this article shows that although all these measures of volatility are remarkably harmful for growth business cycle investment volatility is the main source that hampers long run growth this relation is robust to different measures of business cycle and to different sub samples of countries

do we really know that the wto increases trade comment in a recent article in the american economic review andrew k rose 2004 finds that countries belonging to the general agreement on tariffs and trade gatt and its successor the world trade organization wto did not trade more than countries that abstained from membership a vast literature on the gatt and the wto presupposes that these organizations were important but until rose there were few systematic efforts to test the assumption that membership increased trade rose s contribution is striking because he assembles a large dataset performs a myriad of analyses and uncovers scant evidence that the gatt and the wto had any impact rose describes his negative findings as an interesting mystery 112 the solution to this mystery lies in understanding who actually participated in the gatt we show that rose has overlooked a large proportion of countries to which the agreement applied and mistakenly classified them as nonparticipants when in fact they had rights and obligations under the agreement this causes a downward bias in his estimates of the gatt s effect on trade because his gravity regressions

scotland and small country independence the assessment this paper reviews some of the issues consequent on the formation of new states through secession while its particular focus relates to the potential withdrawal of scotland from the united kingdom it discusses preference heterogeneity as a potential cause of the break up of states relating that to recent developments in the economics of identity it examines some macroeconomic issues particularly debt and currency and reflects on how these might influence secession it examines alternatives fiscal decentralization to secession and considers the strategies that those arguing for and against secession may deploy it also explains the structure of this issue explaining how the different contributions come together

a simple model of product quality with elastic demand abstract in various models starting with klein and leffler 1981 sellers produce high quality for the sake of future profits these models have assumed that a consumer demands one or zero units but a simple model with elastic demand and entry costs can illustrate the same point with fewer problems of existence or determinacy of equilibrium

market potential and the rise of us productivity leadership abstract today s globalization driven by lower barriers to trade has increased market potential for many nations and led to gains in gdp per capita we test whether this was true in the first wave of globalization by constructing market potential measures for a sample of 27 countries in 1900 and 1910 based on a general equilibrium model of production and trade cross sectional estimates suggest that market potential was an economically significant determinant of gdp per capita at this time to assess welfare effects we then study the general equilibrium impact of raising market potential by eliminating international borders in a quantitative counterfactual calculation for 1900 there are significant gains in real income per capita for all nations we use us per capita output as a benchmark since it attained leadership in this variable from the late 19th century and the literature frequently attributes this to its relatively large domestic market a market unconstrained by trade costs associated with international borders because market potential was already near that of the us the largest european countries do not entirely close their per capita income gaps with the us after removing all border barriers to trade within europe or even globally on the other hand many small european countries could have done so

the effect of competition on trade evidence from the collapse of international cartels how do changes in competitive intensity affect trade patterns some cartels may find it advantageous to eliminate cross hauling and divide markets geographically we exploit a quasi natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently prosecuted international cartels since antitrust activity is unlikely to affect spatial patterns of demand and supply other than through its effect on the competitive environment enforcement induced changes are ideally suited to study the effect of competition on trade patterns analyzing the cartels individually and as a group we find no significant change in spatial patterns of trade following cartel breakup in particular there is no systematic change in the effect of distance on trade these results suggest that cross hauling is not uncommon under collusion and hence that the existence of cross hauling by itself does not provide evidence of effective competition

out in the cold iceland s trade performance outside the european union and european monetary union although entering currency and customs unions involve both costs and benefits an increasing body of research is finding that the benefits in terms of international trade creation are remarkably large focusing simply on the european monetary union emu rather than the broad range of currency unions studied by other authors we find that the trade impact of emu is smaller but still substantial our findings suggest that the iceland s trade could increase by about 60 and that the trade to gdp ratio could rise by 12 percentage points should iceland join the european union and emu copyright 2006 oxford university press

correlation of business cycles in the euro zone in this short article we use a simple diferences in diferences technique to investigate whether bilateral correlation of business cycles increased more amongst members of the european monetary union emu after the implementation of the euro than amidst other oecd economies we present evidence suggesting this to be the case importantly this higher correlations appear to be the result of the common monetary policy per se and not of higher bilateral trade

the impact of monetary union on macroeconomic integration evidence from west africa data from 19 african nations is used to investigate the hypothesis that monetary union represented in this case by the cfa franc zone augments the extent of macroeconomic integration the paper covers two key dimensions of integration the volume of bilateral trade and the magnitude of cross country business cycle correlation restricting our attention to a part of the world in which for historical reasons monetary union membership is exogenous to economic characteristics we can test whether the large single currency effects claimed by a rose apply within a sample of less developed countries

honey the currency union effect on trade hasn t blown up as the value of real bilateral trade between countries i and j at time t cu is a dummy variable which is unity if i and j sharethe same currency at time t z is a vector of controls given by an augmentedgravity model c are the associate nuisance coefficients and is a hopefully well behaved residual my chief finding was that was large and robust mypoint estimate was 1 2 implying that currency union is associated with atripling since exp 1 2 3 of trade in his paper in this issue volker nitsch provides three pieces of value added first he finds and corrects a number of data errors in my original data set second he shows that adding extra controls to my empirical setup disaggregating bycurrency unions and adjusting for missing data affects the results he concludesthat the effect of currency union on trade is smaller than my original estimates has not been reliably estimated and may be zero

the euro and its impact on the number size performance and regional spread of european mergers and acquisitions mccarthy k j and dolfsma w the euro and its impact on the number size performance and regional spread of european mergers and acquisitions regional studies the macroeconomic effects of the euro have been extensively studied the literature has however paid significantly less attention to the microeconomic consequences and few authors have considered if and how the euro has impacted firm level decision making this paper explores if how and in what way the euro has impacted one firm level decision whether to merge with or acquire another firm this paper builds a sample of 19 362 acquisitions announced in the period 1990 2014 it shows that the euro has dramatically increased the number size and performance of european mergers and acquisitions importantly it also notes that the euro has altered the geographic spread of european acquisitions the paper reports that since the introduction of the euro acquirers have made increasingly distant acquisitions and have preferred targets in periphera

the gatt in historical perspective the transformation of the general agreement on tariffs and trade gatt into the world trade organization wto on january 1 1995 provides an opportune moment to take stock of the gatt s achievements and shortcomings alongside those of its 50 year old sister international institutions set up at bretton woods it is temptingly easy to attribute the astounding postwar economic expansion particularly when set against the turbulent interwar period when multilateral efforts to contain protectionist pressures failed miserably to the economic policies embodied in the gatt and to the initial stability provided by the bretton woods institutions yet a closer look at precisely what the gatt accomplished in its first decade suggests that trade liberalization under its auspices alone is far from sufficient to explain the postwar economic boom

trade integration and business cycle convergence is the relation robust across time and space in this paper we investigate the relationship between trade intensity and the business cycle correlation using a panel data set taken from 24 countries over the period 1959 2003 most previous studies did not account for the possibility that the business cycle correlation may be influenced by unobservable country pair specific effects our estimates using both fixed and random effects methodologies suggest that trade intensity and the business cycle correlation are positively related to one another however detailed investigation shows that this relationship exists mainly for the european countries

hard or soft pegs choice of exchange rate regime and trade in africa summary this paper revisits the link between fixed exchange rate regimes and trade in the context of africa s exchange rate arrangements differentiating the effects of hard pegs currency unions from conventional soft pegs using a novel dataset of exchange rate regime classification the paper augments the gravity model of bilateral trade flows with measures of currency unions and conventional pegged arrangements and benchmarks africa s experience against the rest of the world we find that in both samples currency unions and pegs increase trade vis a vis more flexible exchange rate arrangements through channels in addition to reduced exchange rate volatility however the effect is almost twice as large for africa in addition the trade generating effect of pegs is at least as large for africa as that of currency unions suggesting that pegs could present a viable option perhaps an alternative to currency unions to promote trade in the region

global output growth and volatility spillovers this article examines discernable patterns of real gross domestic product gdp growth co movements across 29 countries using consistent time series data 1912 2008 of these countries only 12 are found to form three statistically significant groupings i e g6 six organization for economic co operation and development oecd european countries g4 four anglo saxon countries and g2 two major asian countries one may then conclude that inter alia geographical proximity cultural ties and the level of socio economic and financial ties among countries determine the global systematic co movements of growth rates our results indicate that any recession in the us initially engulfs other anglo saxon countries as well as g6 and g2 countries before exerting its adverse knock on effects to the rest of the world a multivariate generalized autoregressive conditional heteroscedasticity mgarch model is also used to examine the transmission of gdp growth across these three groups and their corresponding vol

north south and distance in the gravity model abstract it is generally assumed that distance in the gravity model strictly reflects frictions impeding bilateral trade however distances north south could also reflect differences in factor endowment that provide opportunities for profitable trade this paper investigates the hypothesis that if we control for distance in the ordinary sense differences north south promote international trade the hypothesis receives ample support moreover the significance of differences north south survives a battery of robustness tests concerning period distinctions between differences in latitude north north north south and south south and controls for other measures of differences in factor endowment such as differences in per capita output and differences in average temperature rainfall and seasonal range in temperature the impact of differences north south on bilateral trade has also been falling this decline in turn might be partly responsible for the weakening of the influence of distance that has been occurring since world war ii this last hypothesis receives confirmation as well finally the paper examines the impact of internal distance and remoteness on trade since both variables are country specific this is done by studying their impact on the country fixed effects themselves in the earlier estimates internal distance turns out to have a far greater impact than remoteness by an order of 10

should we have a wto for international migration the international movement of labour remains much more restricted than movement of goods or capital and the worldwide economic gains to liberalizing migration are large this paper asks whether those gains could be realized through better international cooperation on migration along the lines of the wto for trade although public opinion is marginally more negative towards the liberalization of migration than of trade the key impediment is the lack of a basis for reciprocity in negotiations over migration and this is because migration is largely driven by absolute advantage rather than by comparative advantage as in the case of trade consequently there is no basis for wto style negotiations over migration and therefore no grounds for reforming the international architecture in the hope of fostering liberalization timothy j hatton

distance language religion and the law of one price evidence from canada and nigeria we examine the impact of physical distance language and religion on law of one price lop deviations across interwar canadian and modern nigerian cities the data comprise monthly average retail prices for narrowly defined goods collected by national statistical agencies we find that differences in the fraction of the city population sharing a common language and religion have a significant impact on lop deviations the impact of language differences is consistent with a recently developed theory in which both trade costs and differences in signal noise ratios contribute to lop deviations

exchange rate regimes and international trade evidence from the classical gold standard era in this paper we show that the spread of the classical gold standard in the late nineteenth century increased international trade flows this positive effect was compounded whenever a group of countries formed a monetary union applying the gravity model of trade to more than 1 100 country pairs during the 1870 1910 period we find that two countries on gold would trade 60 percent more with each other than with countries on a different monetary standard moreover a monetary union would more than double bilateral trade flows our findings are relevant for current discussions on alternative monetary arrangements for the twenty first century

causes of world trade growth in agricultural and food products 1951 2000 a demand function approach the objective of the present study is to analyse the causes of the growth of international agricultural and food trade in volume terms from 1951 to 2000 the results suggest that income growth has been the principal reason for this expansion while exchange rate stability and the real price of agricultural products played only a minor role multilateral trade liberalization and trade costs given their long term stability are not elements that could have stimulated their growth finally the intensive liberalization of trade which took place in various economic regions especially in europe became a key factor in promoting agricultural trade among the countries participating in regional trade agreements the study results also indicate that the determinants of trade growth for these goods were different to those for other goods and other periods

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

the effect of the euro on foreign direct investment abstract in this paper the recent effect of the european monetary union on inward fdi flows is examined using a difference in differences approach the estimated results show that the introduction of the euro raised inward fdi flows by approximately 16 within the euro area by approximately 11 to non members and weakly by around 8 from non member countries into the euro area moreover the geographical effects of the euro are explored the results show partial agglomeration tendencies for the euro area there are also some indications of increased importance of vertical specialization in the sample

agricultural trade and the gatt wto does membership make a difference recent empirical studies have estimated the trade flow effect of membership in the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt one important although largely untested conclusion from this literature is that the gatt wto works well if we ignore trade in agriculture one of the institutions seemingly apparent failures this article investigates this conclusion using a large panel of agricultural and non agricultural trade flows the results are impressive the multilateral institution has delivered significant positive effects on members agricultural trade despite its sensitive nature and the reluctance of members to undertake serious reform these findings are robust to various slices of the data and recent advances in the specification and estimation of the gravity equation to account for sample selection issues and the extensive margin of trade copyright 2012 oxford university press

order flows news and exchange rate volatility abstract this paper examines the roles of order flow reflecting private information and news reflecting public information in explaining exchange rate volatility analyzing four months of a bank s high frequency dollar euro trading three different kinds of order flow are used in addition to seasonal patterns in explaining volatility we find that only larger sized order flows from financial customers and banks indicating informed trading contribute to explaining volatility whereas flows from commercial customers do not the result is robust when we control for news and other measures of market activity this strengthens the view that exchange rate volatility reflects information processing

the myth of decoupling the decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies and it can be tested as such we develop an innovative measure of business cycle interdependence based on the euclidean distance available at the annual frequency which allows for a proper test for a structural break in a graphical setup we also make use of a standard econometric test both approaches point to the same conclusion there has been no decoupling in recent years if anything the degree of business cycle interdependence has become stronger

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates

a gravity criterium for discriminating traditional protection measures abstract the case of spain in the first globalization illustrates how the gravity equation as a tool from which to derive a comprehensive measure of trade costs can be used to test the soundness of alternative direct measures of specific costs

advancing the design of a dynamic petro dollar currency basket this study offers organization of petroleum exporting countries opec member nations a crude oil pricing currency basket based on currency liquidity in contrast with prior emphasis on opec trading patterns motivating the search for an alternative us dollar pricing of crude oil is the significant and inverse relationship r 0 82 p 0 01 between the us dollar major currencies index and crude oil price over the period january 1999 march 2009 a dynamically weighted petro dollar currency basket is proposed based on the five currency claims us dollar euro british pound japanese yen and swiss franc and their varying proportions of foreign exchange reserves held by central banks the major currencies us dollar index is compared against the proposed petro dollar index to reveal an average us 8 1 billion annual gain in favor of the petro dollar currency basket offering opec members a revenue stream of diversified and highly liquid currencies to transition away from complete dependence on the us dollar crude oil pricing the proposed petro dollar crude oil pricing schema offers opec a crude oil price dynamically denominated in currencies reflecting the global use and importance of crude oil this paper concludes with implementation issues facing a move toward the dynamically weighted petro dollar crude oil pricing schema