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International Capital Flows Within the European Monetary Union: Increasing Economic Divergence Between the Centre and the Periphery

Author

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  • Sergio Rossi

    (University of Fribourg, Switzerland)

Abstract

This paper aims at investigating some neglected consequences of free capital mobility in the Euro area. The approach we use in this work is based on the bookkeeping nature of money, which shows that capital - in the form of bank deposits - is mobile within a currency area but actually immobile between different monetary spaces. Within the Euro area both short- and long-term investments are directed into those economies where the return on investment is highest, a magnitude that is positively correlated with the rate of real growth. If so, then economic divergence might increase between member countries of the European Monetary Union (EMU), giving rise thereby to a higher rate of unemployment in those member countries that suffer from net capital outflows, to the benefit of some other countries in the same area.

Suggested Citation

  • Sergio Rossi, 2007. "International Capital Flows Within the European Monetary Union: Increasing Economic Divergence Between the Centre and the Periphery," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 4(2), pages 309-329.
    • Handle: RePEc:elg:ejeepi:v:4:y:2007:i:2:p:309-329
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    Citations

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    Cited by:

    1. Ponsot, Jean-François, 2016. "The “four I's” of the international monetary system and the international role of the euro," Research in International Business and Finance, Elsevier, vol. 37(C), pages 299-308.
    2. Giuseppe Mastromatteo & Sergio Rossi, 2015. "The economics of deflation in the euro area: a critique of fiscal austerity," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 336-350, July.

    More about this item

    Keywords

    capital mobility; economic divergence; monetary policy; monetary union;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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