An Analysis of DID in Investigating the Impact ofCurrency Unions on North-South Income Convergence

The expansion of international trade has influenced deeply many economies to converge (Slaughter 1998). Now a question can be raised whether the establishment of an economic union (a currency union, for instance) can lead to income convergence or it may cause income divergence between members of that union. This paper examines whether the membership of countries in a block for trade expansion enables their economies to move toward income convergence, while the result should be different between countries in north, or north and south. To this end, the objective, the paper uses a difference-indifferences (DID) analysis to measure the rate of income convergence (divergence) before and after establishing a currency union. The results obtained approve that the implementing of currency union affects significantly and directly income convergence in the world, while this effect in much more pronounced in North-South countries than of North-South ones.