The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper provides a general equilibrium analysis of the trade effects of the formation of a currency union, and of its subsequent enlargement to include an economically dissimilar country. Furthermore, it investigates how economic dissimilarities among countries affect the magnitude of the trade effects fostered by a common currency. We show that sharing a common currency enhances the volume of bilateral trade among countries. However, the more economically dissimilar is an accession country, compared to the original members of a currency union, the smaller are the gains in trade that would follow the enlargement of a currency union.