Sector-specific bilateral trade and currency unions

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Estimations of the gravity equation for international trade are useful tools for explaining the pattern of bilateral, aggregate trade. The development of a commodity-specific gravity equation by Anderson & Yotov (2010) permits using gravity to explain trade in particular commodities. In contrast to previous studies (Lambert & McKoy (2009) and Vollrath & Hallahan (2011)), this paper uses a gravity equation designed specifically for disaggregate, rather than aggregate, trade. The paper emphasizes trade within currency unions, such as the CFA zones in Africa (UEMOA & CEMAC), the East Caribbean Currency Union (ECCU), and the Eurozone. This paper estimates commodity-specific gravity equations on a panel of country pairs (1976-2010 for agricultural trade; 1980-2010 for manufacturing trade) with the Pseudo-Poisson Maximum Likelihood estimation to explain the determinants of trade for agricultural trade and manufacturing trade separately. The most significant determinant of agricultural trade is whether a country pair consists of a former colonial power and colony. This relationship also matters, but to a lesser extent, for manufacturing trade. Two countries being former colonies of the same colonizer, trade agreements, a common currency, and a common language are better predictors of manufacturing than of agricultural trade. The effect of a common currency on trade differs across currency unions and types of traded goods. The UEMOA, the Rand zone, and US-Dollarized countries, exhibit higher levels of agricultural trade. In contrast, the ECCU, the CEMAC, and the UEMOA demonstrate higher levels of trade in manufactured goods. The paper also disaggregates trade into 3 groups of ISIC 3 2-digit divisions: 15-19, 20-37, and 17 (textiles). The determinants of textile trade resemble the determinants of trade for the 15-19 category. Currency unions, regional trade agreements, and colonial heritage tend to matter more for the broader category of trade than for textiles.
Original languageEnglish
Publication statusPublished - 12 Apr 2014
Event17th Annual Conference on Global Economic Analysis: New Challenges in Food Policy, Trade and Economic Vulnerability - Senegal, Dakar, Senegal
Duration: 18 Jun 201420 Jun 2014


Conference17th Annual Conference on Global Economic Analysis
Abbreviated titleGTAP2014
OtherGlobal Trade Analysis Project
Internet address

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