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Chen, Novy

Articles by Chen, Novy

The impact of trade costs can be weak or strong – depending on how much countries trade

September 17, 2021

The impact of trade costs can be weak or strong – depending on how much countries trade
A key research topic in international trade is the link between trade costs and trade flows (Arvis et al. 2013). If trade costs go down, by how much does trade go up? Economists refer to this as the ‘trade cost elasticity’.
To evaluate the effect of trade costs, researchers typically rely on a standard gravity equation framework and insert trade cost proxies as regressors on the right-hand side. For example, they might use bilateral distance or dummy variables for regional trade agreements and currency union status. This yields single coefficients to assess the trade effects of trade costs. By construction, these effects are homogeneous across all country pairs in the sample.

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Currency unions mean more trade, but not for everyone

July 9, 2018

Currency unions are an important institutional arrangement to facilitate international trade and reduce trade costs. In the period since WWII, a total of 123 countries have been involved in a currency union at some point. By the year 2015, 83 countries continued to be involved in one. In addition, various countries are considering forming new currency unions or to join existing ones. For example, the East African Community is thinking about setting up a common currency. Also, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, and Sweden are supposed to join the euro at some point.
The traditional currency union effect on trade: One size fits all
By how much do currency unions facilitate international trade? To evaluate the trade effect of currency unions,

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