Does a Currency Union Boost International Trade?

This article explores the impact of currency unions—the decision by two or more nations to adopt the same currency—on international trade. It demonstrates that even after all other relevant factors are held constant, currency unions have a significant impact on trade: countries that share the same currency trade with each other three times as much as with countries with different currencies. This analysis suggests that the impact of the single European currency on trade—and thus competition—within Europe will be much more substantial than many observers have predicted.