Real Output Co‐movements in East Asia: Any Evidence for a Monetary Union?

The East Asian region has experienced astonishing economic growth and integration over the past few decades. It is generally believed that a high degree of integration in the region would greatly shape the economic structure of each individual economy and has direct implications for the effectiveness of domestic stabilisation policy and policy coordination. This paper empirically examines the feasibility of forming a monetary union in East Asia by assessing the real output co‐movements among these economies. As suggested by the optimum currency area (OCA) theory that losing monetary independence would be the major cost for adopting a common currency, it would be less costly for the economies to form a monetary union if the business cycles are synchronised across countries. The cointegration test and the Vahid and Engle (1993 ) test for common business cycles are conducted to examine their long‐run relationship and short‐run interactions in real outputs, respectively. Our study found that some pair countries in the region share both the long‐run and short‐run synchronous movements of the real outputs. In particular, the short‐run common business cycles are found in some pairs of ASEAN economies consisting of Singapore, Thailand and Indonesia, and in the Northeast Asian region consisting of Hong Kong, Korea and Mainland China, as well as between Japan and Taiwan. These findings have important implications for the economies in terms of adjustment costs when considering the adoption of a monetary union.     

Does Monetary Integration Reduce Exchange Rate Pass‐Through?

There are several theoretical arguments for why the adoption of a common currency (either a currency union or a currency board) may reduce the exchange rate pass‐through (ERPT) to domestic consumer prices. This paper examines a broad panel of 101 countries over the period 1976–2006, using two‐stage instrumental‐variable estimation techniques in order to resolve the potential endogeneity problem. The main result is that ERPT indeed tends to decline in countries participating in a common currency arrangement. In particular, there has been a strong reduction in pass‐through in the member countries of the European Monetary Union (EMU) since the launch of the euro. Currency boards do not appear to be different from currency unions – both reduce the pass‐through from depreciation to inflation. Furthermore, the negative impact of common currencies on ERPT is at work in both high‐income and low‐income countries. Finally, most of the reduction in pass‐through to consumer prices under common currency arrangements happens somewhere along the pricing chain between the border and the supermarket shelf.     

The feasibility of currency union in Gulf Cooperation Council countries: A business cycle synchronisation view

This paper study the feasibility of a monetary union among Gulf Cooperation Council (GCC) countries, by measuring the evolution of economic integration among them. Considering the critical role of crisis and shocks in the integration process within the region, we determine whether GCC countries are characterised by a common business cycle. We suggest a different empirical approach that, unlike previous studies, allows one to endogenously detect structural changes in the comovement process between outputs. We apply a new measure for this region that is based on the time‐varying coherence function. Such a measure not only detects comovement dynamics but also distinguishes these dynamics in terms of short‐ and long‐term cycles. Additionally, we can test whether certain countries tend to be more synchronised. The main finding of this study is that not all GCC countries share a common short‐term business cycle. However, in the long term, all country‐pairs indicate a medium‐level synchronisation in the most recent subperiods. The new role of the United Arab Emirates’ regional trade platform allows it to strengthen long‐term business cycle comovement, thus differentiating it from other GCC country‐pairs that have shown a decline in the last two subperiods.     

On the Adequacy of Monetary Arrangements in Sub‐Saharan Africa

We examine the economic rationale for monetary union(s) in Sub‐Saharan Africa through the use of cluster analysis on a sample of 17 countries. The variables used stem from the theory of optimum currency areas and from the fear‐of‐floating literature. It is found that the existing CFA franc zone cannot be viewed as an optimum currency area: CEMAC and UEMOA countries do not belong to the same clusters, and a ‘core’ of the UEMOA can be defined on economic grounds. The results support the inclusion of the Gambia, Ghana and Sierra Leone in an extended UEMOA arrangement, or the creation of a separate monetary union with the ‘core’ of the UEMOA and the Gambia, rather than the creation of a monetary union around Nigeria. Finally, the creation of the West African Monetary Zone (WAMZ) around Nigeria is not supported by the data.     

Real exchange-rate changes in the European community: A new approach to the determination of optimum currency areas

Deviations from relative purchasing power parity (real exchange-rate changes) are suggested as a comprehensive and operational criterion of the desirability of currency unification. Using consumer price indices, the criterion is applied to the European Community in 1959–1976 and in various subperiods. It is shown, inter alia, that the Community is probably a less desirable currency area than comparable existing currency unions like Germany, Italy and the U.S., that its failure to implement its 1971 plans for monetary union can hardly be attributed to unusually unfavourable external disturbances and that it is possible to identify the member countries which are the most suitable candidates for a pioneer venture in currency unification.     

Exchange-rate sensitivity of commodity trade flows: Does the choice of reporting country affect the empirical estimates?

While the effects of currency fluctuations on trade have long been of interest to economic researchers, the most recent trend in the literature is to estimate commodity trade flows between pairs of countries. This raises an important question: Does it matter which country reports the data? This study investigates 96 industries that are reported both as exports by the United States and as imports by South Korea. Since export data are FOB and import data are CIF, the Korean imports are expectedly larger than the US exports. Correspondingly, our cointegration analysis produces drastically different results between specifications. Nonparametric analysis shows that the Korean imports are more sensitive to real exchange-rate fluctuations than US exports, signifying the importance of cost of insurance and freight, as well as the data's conversion into dollars.     

Investigating first‐stage exchange rate pass‐through: Sectoral and macro evidence from euro area countries

In this paper, we evaluate the first‐stage pass‐through, namely the responsiveness of import prices to the exchange rate changes, for a sample of euro area (EA) countries. Our study aimed to shed further light on the role of microeconomic factors versus macroeconomic factors in influencing the extent of the exchange rate pass‐through (ERPT). As a first step, we conduct a sectoral analysis using disaggregated import prices data. We find a much higher degree of pass‐through for more homogeneous goods and commodities, such as oil and raw materials, than for highly differentiated manufactured products, such as machinery and transport equipment. Our results confirm that cross‐country differences in pass‐through rates may be due to divergences in the product composition of imports. The higher share of imports from sectors with lower degrees of pass‐through, the lower ERPT for an economy will be. In a next step, we investigate for the impact of some macroeconomics factors or common events experienced by EA members on the extent of pass‐through. Using the system generalised method of moments within a dynamic panel‐data model, our estimates indicate that decline of import‐price sensitivity to the exchange rate is not significant since the introduction of the single currency. Our findings suggest instead that the weakness of the euro during the first 3 years of the monetary union significantly raised the extent of the ERPT. This outcome could explain why the sensitivity of import prices has not fallen since 1999. We also point out a significant role played by the inflation in the Eurozone, as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment. Overall, our findings support the view that the extent of pass‐through is comprised of both macro‐ and microeconomic aspects that policymakers should take into account.     

Economic Integration in East Asia: An International Input‐Output Analysis

To establish economic and monetary union (EMU) in East Asia, deepening regional integration through international trade is important. The economic interdependence (one of the important criteria for regional integration) study, using macro data does not reflect the indirect effects generated by interactions between different production sectors and different countries. We use the international input‐output (IIO) framework to study the economic interdependence at both macro and production sector levels. We refine the existing methods to reflect exogenous country effect and size effect of the economy. Our study suggests that establishing EMU in East Asia appears to be somewhat premature. However, we can be more optimistic for regional integration at the production sector level in East Asia when including Japan, which will create a basis for EMU in the region.     

Currency Unions in Africa: Is the Trade Effect Substantial Enough to Justify their Formation?

Using estimates that currency unions double trade, we quantify the welfare effects of forming currency unions for the African regional economic communities and for the African Union as a whole. The potential increase in trade is shown to be small, and much less than that resulting from the adoption of the euro. Allowing for increased African trade does not overturn the negative assessment of African currency unions, due to asymmetries in countries’ terms‐of‐trade shocks and their degree of fiscal discipline.     

Estimating the Impact of Currency Unions on Trade: Solving the Glick and Rose Puzzle

Does leaving a currency union reduce international trade? This paper uses a historical approach to re‐examine the puzzling large apparent impact of currency unions on trade. I find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors, including warfare, communist takeovers and ethnic cleansing episodes. My methodology, which carries lessons for other uses of gravity equations in policy analysis, yields point estimates of currency unions on trade that are not statistically distinct from zero.     

One Market,One Money: Evidence from Canada–United States Economic Integration

In this paper, we focus on the evolution of the optimum currency area (OCA) properties between Canada and the United States. To this end, we specifically investigate the relationship between the intra‐industry trade dynamics of Canadian provinces with the United States and the increasing level of integration between the two countries from 1980 to 1998. Our findings lead us to support the view that integration (real and monetary) improves the conditions under which a monetary union can yield net gains in the long run for the integrating countries. We also find that exchange rate developments exert asymmetric effects on the Canadian provinces.     

Does a Common Currency Promote Countries’ Growth via Trade and Tourism?

The main aim of this study is to contribute to the debate on the effects of a common currency. In particular, the impact of a common currency on growth via trade and tourism is explored for a panel dataset which includes 179 countries as destination and 30 OECD countries as origin over the period 1995–2006. This research contributes to previous work in three ways: (i) tourism is included as an additional channel for a common currency to promote growth; (ii) the heterogeneity of countries is addressed by dividing the sample into three groups of countries by income; and (iii) up‐to‐date data including the case of the euro are considered. The results obtained suggest that a common currency strengthens economic growth by promoting not only international trade but also tourism.     

Neutrality agreements: How unions organize new hotels without an employee ballot

Hoteliers who have a project under development increasingly are being asked by labor-union organizers to sign so-called neutrality agreements—sometimes under duress. While labor unions do not operate in all hotel markets, this organizing tactic seems to be gaining currency where unions are present. By signing a neutrality agreement, the hotelier agrees not to oppose the union's organizing efforts, to allow the union to contact employees during work hours, and to allow the union access to employee directories. Without the agreement, the union would not be allowed any of those things, and the hotelier would be allowed to state its case publicly for why employees might not want to be represented by a union. The duress comes from the union's potential threat to use political connections to hamper the project's permits and to invoke the activity of other labor unions. The key element missing in the neutrality agreement is the employees' consent to the arrangement. Given that workers are legally given the right by U.S. labor law to decide via a secret ballot whether they do or do not want to be represented by a union, a neutrality agreement that allows for employers to recognize a union via a “card check” provision appears to abrogate that right to a secret vote by effectively sealing the matter before the hotel even begins hiring. Recent court rulings point to the likelihood that if workers formally complain to the National Labor Relations Board about such agreements, those agreements could be set aside.     

Multinational corporations and trade union development in Malaysia

This contribution considers the impact of American, Japanese and Australian capital upon organized labour in Malaysia and concludes that the legacy of the multinational corporations' (MNCs') home context is carried forward to the host country. Despite the predictions of globalization theorists, country of origin characteristics interact with local contexts to inform management strategies towards trade unions, rather than being driven by the lowest common denominator of anti-unionism. While there are substantial differences between the MNCs in their approach to trade unions in Malaysia, there is also a degree of conformity in as much as they all embrace the restrictive intent of the Malaysian state's trade union regulatory environment, thereby severely curtailing the power of the union movement.     

International Competitiveness and the Single Currency

This article puts together the results of a five-year comparative study of UK and Irish manufacturing exporters and discusses its implications for currency unions and particularly the Euro. Overall, the results indicate a positive linkage between exchange-rate stability and individual firms' competitiveness. Irish exporters have benefited from their government's approach to European Monetary Union (EMU) and will continue to do so. The research identifies changes in firm-level competitive activity that occur where the exchange rate is fixed, and argues that exchange-rate stability leads to sustained long-run competitive advantage for firms located within the currency area (over those that are not). European currency while existing Euro-zone countries will be assessing whether they have benefited from it. At the same time, countries elsewhere in the world may need to consider abandoning their independent currencies in favour of the dollar, the Euro, or the Yen.     

Gewerkschaften auf dem Rückzug? Mythen,Fakten und Herausforderungen

A comparison across 20 advanced countries shows that trade union density has fallen in most countries over the last 50 years, with substantial differences between countries. However, unions are not about to vanish everywhere, and some prominent explanations for union decline such as globalization do not hold on closer scrutiny. Current trends that pose serious problems for union membership are demographic change, the declining employment share of the public sector, the rise in atypical employment, and the decline in average firm size. Upholding union presence at the workplace is crucial for keeping and winning members, and union recruiting should focus more on young and atypically employed workers.     

REAL CONVERGENCE AND PRICE LEVELS: LONG‐TERM TENDENCIES VERSUS SHORT‐TERM PERFORMANCE IN THE ENLARGED EUROPEAN UNION

A cross‐country regression relating the relative price level to the relative GDP level is statistically significant and stable over time. Price and GDP levels for EU member countries tend to gravitate to that line. The conclusion that there is a shorter‐term trade‐off between fast real convergence and low inflation is unwarranted. Higher inflation is not a necessary companion of fast convergence. Giving up national currency, or pegging it to the euro, may prevent real convergence or precipitate divergence. A weak initial price level may be insufficient. While retaining national currency is not risk‐free, it allows a corrective devaluation.     

Current Account ‘Core–Periphery Dualism’ in the EMU

Current account (CA) dispersion within European Union (EU) Member States has been increasing progressively since the 1990s. Interestingly, the persistent deficits in many peripheral countries have not been accompanied by a significant growth process able to stimulate a log run rebalancing as neoclassical theory predicts. To shed light on the issue, this paper investigates the determinants of Eurozone CA imbalances, focusing on the role played by financial integration. The analysis considers two samples of 22 OECD and 15 EU countries, three time horizons corresponding to various steps in European integration, different control variables and several panel econometric methods. The results suggest that within the EU group of countries financial integration contributed to explain the CA deterioration in the peripheral countries especially in the post‐EMU period creating an asymmetric behaviour within the EMU. From a financial stability perspective, this ‘divergence’ could hinder the effectiveness of monetary policy. By reducing the apparent benefits of participating in the monetary union, it also raises the risk of a break‐up.     

International Enterprises and Trade Unions

A “shipping war” has broken out between two friendly neighbouring countries: Estonia (a rather poor land; liberated of Soviet occupation in 1991), and Finland (a wealthy one; independent since 1918). Led by their trade union the Finnish dockers boycott Estonian ships demanding for Estonian sailors the salary in the same range as that is in wealthy West-European countries. Estonian Sailors' Union finds that such a war is not for their better work-conditions but against their working possibilities: the cheap labour force is the only possibility for a poor country to entice foreign investments in it. No matter how the “shipping war” will be solved – the problem will remain. This is the problem of two opposites – cheap labour force of poor countries and expensive one of wealthy countries –, and international enterprises standing between them. Could such an enterprise survive without using the cheap labour force? And if it could, how could the poor countries survive then? Could there be found a clear unambiguous ethical solution? What ought to be the role of trade unions in such international business conflicts?     

A Political Economic Critique on the Theory of Optimum Currency Areas,and the Implications for East Asia

In recent years, dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in East Asia. While the debate has relied heavily on the theory of optimum currency areas, this theory has weaknesses in explaining the actual formation of monetary unions. At this point, political economy analysis appears to demonstrate stronger explanatory power. This paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union. In addition, it addresses the feasibility of an East Asian monetary union, by applying the findings in these two academic strands to the region. It finds that even though formation of an East Asian monetary union may be to some extent feasible from an economic perspective, the region’s political situation does not appear favourable for the creation of one.