Center for International and Development Economics Research
Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era
- Author(s): Lopez-Cordova, J. Ernesto
- Meissner, Chris
- et al.
In this paper we show that the spread of the classical gold standard in the late nineteenth century increased international trade flows. This positive effect was compounded whenever a group of countries formed a monetary union. Applying the gravity model of trade to more than 1,100 country pairs during the 1870-1910 period, we find that two countries on gold would trade 60 percent more with each other than with countries on a different monetary standard. Moreover, a monetary union would more than double bilateral trade flows. Our findings are relevant for current discussions on alternative monetary arrangements for the twenty-first century.