Open Economies Review

, Volume 18, Issue 5, pp 599–612 | Cite as

Testing the Links between Institutional Integration and Trade Deepening: Clues from Europe

  • Itai Agur
  • Ettore Dorrucci
  • Francesco Paolo Mongelli
Research article
  • 91 Downloads

Abstract

This paper investigates the interaction between institutional integration and trade deepening in the EU over the last 50 years. It uses Granger causality tests, a VECM and variance decompositions to further the understanding of this interaction. The evidence indicates two-way endogeneity. But the link from institution building to trade dominates. Yet, this link has weakened over time, possibly due to globalisation sidestepping institutions. Moreover, the sensitivity of institutional integration to trade deepening has risen, which suggests that economic forces have gained more strength in determining institutional steps.

Keywords

Optimum currency area Endogeneity Institutional integration Trade EU 

JEL Classification

E42 F15 F33 F41 

References

  1. Angeloni I, Flad M, Mongelli FP (2007) Economic and monetary integration of the new member states: helping to chart the route. J Common Mark Stud, in pressGoogle Scholar
  2. Artis MJ (2003) Reflections on the Optimum Currency Area (OCA) criteria in the light of EMU. Int J Financ Econ 8:297–307CrossRefGoogle Scholar
  3. Balassa B (1961) The theory of economic integration. Irwin, Homewood, ILGoogle Scholar
  4. Dorrucci E, Firpo S, Fratzscher M, Mongelli FP (2002) European integration: what lessons for other regions? The case of Latin America. ECB working paper no. 185Google Scholar
  5. Dorrucci E, Firpo S, Fratzscher M, Mongelli FP (2004) The link between institutional and economic integration: insights for Latin America from the European experience. Open Econ Rev 15:239–260CrossRefGoogle Scholar
  6. Frankel J, Rose AK (1997) Is EMU more justifiable ex-post than ex-ante? Eur Econ Rev 41:753–760CrossRefGoogle Scholar
  7. Frankel J, Rose AK (1998) The endogeneity of the optimum currency area criteria. Econ J 108:1009–1025CrossRefGoogle Scholar
  8. Frankel J, Rose AK (2002) An estimate of the effects of common currencies on trade and income. Q J Econ 117:437–466CrossRefGoogle Scholar
  9. Mongelli FP (2002) “New” views on the optimum currency area theory: what is EMU telling us? ECB working paper no. 138Google Scholar
  10. Mundell RA (1961) A theory of optimal currency areas. Am Econ Rev 51:105–146Google Scholar
  11. Rose AK (2001) Currency unions and trade: the effect is large. Econ Policy 16:433–462CrossRefGoogle Scholar
  12. Rose AK (2004) A meta-analysis of the effects of common currencies on international trade. NBER working paper No. 10373Google Scholar
  13. Rose AK, Lockwood B, Quah D (2000) One money, one market: the effect of common currencies on trade. Econ Policy 15:7–45CrossRefGoogle Scholar
  14. Tavlas GS (1993) The ‘new’ theory of optimum currency areas. World Econ 16:663–685CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Itai Agur
    • 1
  • Ettore Dorrucci
    • 2
  • Francesco Paolo Mongelli
    • 2
  1. 1.European University InstituteFlorenceItaly
  2. 2.European Central BankFrankfurt/MainGermany

Personalised recommendations