Gold and Trade. An empirical simulation approach

This paper examines the rise of the classical gold standard by studying the reciprocal relation between trade and monetary regimes from the 1860s to World War I. 

Existing gravity estimates cannot identify this relation cleanly because trade and regime choice are jointly endogenous and bilateral trade depends on wider network structure, even after standard corrections. Using a dynamic social network model, we show that trade networks strongly shaped monetary choices: countries tended to adopt the regimes of their main trading partners. By contrast, it finds little support for the classic gravity-model claim that shared regimes substantially increased trade.