The Latin Monetary Union and Trade: A Closer Look

TL;DR

This study reevaluates the impact of the 19th-century Latin Monetary Union on trade, using advanced gravity models and rigorous controls, finding initial positive effects that faded over time.

Contribution

It introduces a refined analysis of the LMU's trade effects by applying modern gravity modeling and better control group definitions, improving upon prior research.

Findings

LMU initially boosted trade among member countries

Trade effects diminished and converged to zero by the early 1870s

Results remain consistent across different data sources and methods

Abstract

This paper reexamines the effects of the Latin Monetary Union (LMU) - a 19th century agreement among several European countries to standardize their currencies through a bimetallic system based on fixed gold and silver content - on trade. Unlike previous studies, this paper adopts the latest advances in gravity modeling and a more rigorous approach to defining the control group by accounting for the diversity of currency regimes during the early years of the LMU. My findings suggest that the LMU had a positive effect on trade between its members until the early 1870s, when bimetallism was still considered a viable monetary system. These effects then faded, converging to zero. Results are robust to the inclusion of additional potential confounders, the use of various samples spanning different countries and trade data sources, and alternative methodological choices.