@article{Whitten:332544,
      recid = {332544},
      author = {Whitten, Greg},
      title = {Sector-specific bilateral trade and currency unions},
      address = {2014},
      pages = {62},
      year = {2014},
      note = {Presented at the 17th Annual Conference on Global Economic  Analysis, Dakar, Senegal},
      abstract = {Empirical estimations of the gravity equation for  international trade have proven to be useful tools for  explaining the pattern of bilateral, aggregate trade ((see  Evenett and Keller (2002)). The development of a  commodity-specific gravity equation by Anderson and Yotov  (2010) permits bringing the useful tool of gravity to  explaining trade of particular commodities or classes of  goods. This paper brings to disaggregate trade the analysis  brought to previous panel studies of worldwide, aggregate,  bilateral trade (see Glick and Rose (2002), Baier and  Bergstrand (2007), Baier and Bergstrand (2009), and Head et  al. (2010) among others). In contrast to previous studies  such as Lambert and McKoy (2009) and Vollrath and Hallahan  (2011), this paper uses a gravity equation designed  specifically for disaggregate, rather than aggregate,  trade. The paper gives particular emphasis to trade within  currency unions, such as the CFA zones in Africa, the East  Caribbean Currency Union (ECCU), the Eurozone, and the Rand  zone around South Africa. This paper estimates the  commodity specific gravity equation using the  Pseudo-Poisson Maximum Likelihood estimation in order to  explain the determinants of trade for agricultural trade  and manufacturing trade separately. The paper uses a panel  of all available country pairs ranging from 1976 to 2010  (for agricultural trade) and from 1980 to 2010 (for  manufacturing trade). Data come from the UN COMTRADE  database, the TRAINS database (both maintained by WITS),  and the UNIDO INDSTAT database. The most significant  determinant of agricultural trade is whether or not a  country pair consists of a former colonial power and one of  its former colonies. Though this relationship also matters  for manufacturing trade, the effect is moderate when  compared with agricultural trade. However, two countries  being former colonies of the same colonizers is a better  predictor of manufacturing trade than of agricultural  trade, where “better” signifies that the marginal effect is  larger for manufacturing trade than for agricultural trade.  Additionally, regional trade agreements, a common currency,  and a common language are better predictors of  manufacturing trade than of agricultural trade. The effect  of a common currency on trade differs widely across  currency unions and between types of traded goods. The West  African Economic and Monetary Union (UEMOA), the Rand zone,  US-Dollarized countries, and the anchor-client relationship  of India-Bhutan exhibit modestly higher levels of  intraunion agricultural trade than otherwise similar  countries. In contrast, the ECCU, the Central African  Economic and Monetary Union (CEMAC), the UEMOA, the  Australian Dollar zone (Australia, Kiribati, and Tonga) and  India-Bhutan demonstrate significantly higher levels of  intraunion trade in manufactured goods. The Rand zone  demonstrates a modestly higher level of intraunion trade in  manufacturing. The paper further disaggregates  manufacturing trade into 2 groups of ISIC 3 2- digit  classifications: 15-19 and 20-37. The determinants of trade  in the former set of goods, consisting of food products and  textiles, resemble the determinants of trade in  agricultural goods generally. However, a trade agreement is  a more important factor for goods classified 15-19 than for  goods classified 20-37, in contrast to the results from the  more aggregated models. The paper also isolates trade in  textiles for analysis. Textile trade is defined as trade in  goods belonging to division 17 in the ISIC Revision 3  classification system. The determinants of textile trade  are largely similar to the determinants of trade for the  broader category of goods with codes 15-19. Currency  unions, regional trade agreements, and colonial heritage  tend to matter more for the broader category of trade than  for textiles.},
      url = {http://ageconsearch.umn.edu/record/332544},
}