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Monetary Integration Effects on Foreign Direct Investments in New EU Member States

Author

Listed:
  • Velić, Ismar

    (Faculty of Economics and Business, University of Rijeka, Croatia)

  • Cvecic, Igor

    (Faculty of Economics and Business, University of Rijeka, Croatia)

Abstract

This study examines the impact of accession to the Economic and Monetary Union (EMU) on foreign direct investment (FDI) inflows in the 11 New Member States (NMS), during the period 2005-2018. Using panel regression analysis and the gravity model, the influence of macroeconomic indicators on FDI outflows from 21 industrialised countries (including EU and non-European counties, such as Japan and USA) to the NMS is assessed. The empirical results suggest that favourable macroeconomic indicators in the NMS, such as a stable exchange rate, lower inflation, long-term interest rates and EU/EMU membership, are positively correlated with FDI inflows from NMS. Conversely, rising inflation and exchange rate volatility in the NMS are negatively associated with FDI inflows, while inflation in the FDI origin countries is positively correlated with investment in the NMS. The results suggest that joining the EMU has a statistically significant and positive relationship on FDI inflows to the NMS

Suggested Citation

  • Velić, Ismar & Cvecic, Igor, 2024. "Monetary Integration Effects on Foreign Direct Investments in New EU Member States," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 39(1), pages 55-85.
    • Handle: RePEc:ris:integr:0894
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    More about this item

    Keywords

    foreign direct investments - FDI; monetary integration; European economic integration (EU and EMU); gravity model; panel-regression analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • N31 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: Pre-1913

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