‘Does a Currency Union Affect Trade? Evidence from the Italian Unification and the Franc Germinal Bloc (1848-1876)’

The paper provides an estimate of the effect of monetary integration on international trade, first identified by Rose (2000)’s seminal paper on the currency union effect on trade, during the first globalization period.
I draw a quasi-natural experiment from the process of Italian unification, which saw a number of sovereign Italian states to be annexed by the Savoy monarchy between 1858 and 1870.
Indeed, Italian political integration overlapped with two distinct processes of monetary integration. At the national level, the Italian Lira was introduced as the only legal tender starting in 1862.
At the international level, a process of monetary integration around the French Franc Germinal had been ongoing since the Napoleonic conquest of Europe. Belgium and Piedmont both continued using a currency intrinsically equivalent to the French Franc after 1815. When the annexed Italian pre-unitary states adopted the Lira in 1862, they therefore joined at the same time a larger monetary bloc composed by Italy, France, Belgium and Switzerland. The bloc was formally acknowledged through the 1865 monetary convention which gave birth to what has been since known as the Latin Monetary Union.
I exploit those events within the differences-in-differences empirical framework widely used in the “Rose effect” literature (Micco et al., 2003; Tenreyro, 2010). In order to do so, it employs newly compiled trade data from archival sources, mainly relying on the Etats de Commerce et de Navigation sent by the French consulates to the Quai d’Orsay and conserved at the French Archives. In particular, the paper provides for the first time comparable international trade data for Italian regions both pre and post-unification.
The paper brings interesting contributions to both the economics and economic history literature.
First, the Italian unification represents a rare example of an exogenous monetary unification, largely driven by military events. This means that the paper’s estimate of the currency union effect on trade is not biased by the endogeneity problem which generally pervades the “Rose effect” literature.
Second, the paper’s estimate would allow to distinguish between the effect of national and international monetary integration, something the “Rose effect” literature has been unable to do so far given the lack of national case studies of monetary integration.
Finally, the paper sheds some lights on the effects of the Italian unification on the Italian regional divide, and particularly the extension of the Northern tariff to the South, which is often said to have induced permanent damages to the Southern Italian economy (Daniele and Malanima, 2011). While a debate exists in the literature on whether the extension of the Northern tariff damaged Southern trade (Felice, 2013) the paper will not only provide a tentative quantification but will also disentangle the tariff effect from the monetary unification one.