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Does the Single Currency Affect Foreign Direct Investment?

Author

Listed:
  • José de Sousa

    (RITM - Réseaux Innovation Territoires et Mondialisation - Université Paris-Saclay)

  • Julie Lochard

    (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel)

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.

Suggested Citation

  • José de Sousa & Julie Lochard, 2011. "Does the Single Currency Affect Foreign Direct Investment?," Post-Print hal-04328098, HAL.
    • Handle: RePEc:hal:journl:hal-04328098
    DOI: 10.1111/j.1467-9442.2011.01656.x
    as

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