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Eurozone Membership and Foreign Direct Investment

In: Comparative Economic Studies in Europe

Author

Listed:
  • Randolph Luca Bruno

    (University College London, School of Slavonic and East European Studies
    IZA, Institute of Labor
    Rodolfo DeBenedetti Foundation)

  • Saul Estrin

    (London School of Economics)

Abstract

Our aim in this chapter is to estimate the effects of European Monetary Union (EMU) membership on foreign direct investment (FDI). Previous literature on the cross-border impact of a common currency have concentrated on international trade effects. Our analysis is based on the gravity model, which has been successfully applied to explain most forms of bilateral cross-border flows. We estimate a structural gravity model using data for 34 OECD countries between 1985 and 2013 for bilateral FDI. We use a variety of econometric techniques to ensure the robustness of our findings including stock as well as flow measures of FDI and addressing selection issues. Our estimates of the impact of EMU underlines the role of FDI as a channel for benefits from deep economic integration between countries. The effect of EMU membership on FDI is estimated to be significant and positive, at around 130%.

Suggested Citation

  • Randolph Luca Bruno & Saul Estrin, 2021. "Eurozone Membership and Foreign Direct Investment," Studies in Economic Transition, in: Wladimir Andreff (ed.), Comparative Economic Studies in Europe, edition 1, pages 211-226, Palgrave Macmillan.
    • Handle: RePEc:pal:stuchp:978-3-030-48295-4_11
    DOI: 10.1007/978-3-030-48295-4_11
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