Impact of Currency Union on Trade: Comparative Analysis of EMU and SACU - Gravity Model Approach
Impact of Currency Union on Trade: Comparative Analysis of EMU and SACU - Gravity Model Approach

Summary/Abstract: This study uses the augmented gravity model to establish the impact of two different currency unions namely SACU and EMU on bilateral trade. These countries are 5 members SACU and 11 members of EMU. We used the most recent data for 16 countries collected over 15 years spanning between the years 2000 to 2014. The periods under study were divided into two and this are short run period (2000-2003) and the long run period (2000-2014). This study tries to investigate whether EMU and SACU leads to trade creation or diversion in the short run and in the long run. Secondly it tries to investigate whether bilateral trade between EMU and SACU leads to trade creation in the short run and in the long run and thirdly it tries to investigate whether the impact of EMU and SACU on trade produce consistent results. The results of comparative analysis showed that the effect of EMU and SACU on Trade produced consistent results both in the short run and in the long run.

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