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The trade and FDI effects of EMU enlargement

  • Brouwer, Jelle
  • Paap, Richard
  • Viaene, Jean-Marie

This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the 10 countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a data set of unbalanced panel data that combine bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depend on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5% for Poland and 30% for Hungary.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 2 (March)
Pages: 188-208

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:2:p:188-208
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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