Does the Single Currency Affect Foreign Direct Investment?* |
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Authors: | José de Sousa Julie Lochard |
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Institution: | 1. University of Paris 1, FR‐75013 Paris, Francejdesousa@univ‐paris1.fr;2. University of Paris‐Est Créteil Val de Marne, FR‐94010 Créteil, Francejulie.lochard@univ‐paris12.fr |
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Abstract: | Does the creation of the euro partly explain the sharp increase in European investments? To address this question, we derive a simple gravity‐like model for bilateral foreign direct investment (FDI). Using this model, we find that the Economic and Monetary Union (EMU) has increased intra‐EMU FDI stocks on average by around 30 percent. This effect varies over time and across EMU members. It is found to be larger for the outward investments of the less‐developed EMU members. Moreover, contrary to early expectations of FDI diversion effects, EMU countries have invested more in non‐EMU countries since the launch of the euro. |
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Keywords: | Foreign direct investment euro gravity model monetary union F15 F21 F33 |
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