IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v39y2018i1_supplp39-56.html
   My bibliography  Save this article

Is energy market integration a green light for FDI?

Author

Listed:
  • Maria T. Costa-Campi
  • Jordi Paniagua
  • Elisa Trujillo-Baute

Abstract

This paper contributes to a better understanding of the effects of the European single market strategy by studying the effect of energy market integration (EMI) on foreign direct investment (FDI). Enforcing an EMI diminishes energy uncertainty and price volatility and signals stronger and credible institutions. FDI may, as a result, increase both within and outside the EMI area through two channels: first, via energy price converge and, second, via price dispersion reduction. We develop a formal model to explain how these mechanisms affect the capital invested abroad by heterogeneous firms. The Iberian Electricity Market (MIBEL) integration of 2007 is used to quantify the effect of EMI on FDI empirically. Gravity estimates on a global dataset including bilateral FDI data show that the integration of Portugal and Spain’s electricity market increased both the amount of FDI’s participants and the number of foreign projects. In line with our theoretical expectations, our estimates show that the increase of FDI is mainly due to the reduction in price dispersion. However, the institutional credibility signal sent by MIBEL had a greater influence than expected by the actual price reduction. Furthermore, we also observe a positive increase in FDI from neighboring countries (in this instance, France), albeit lower in magnitude

Suggested Citation

  • Maria T. Costa-Campi & Jordi Paniagua & Elisa Trujillo-Baute, 2018. "Is energy market integration a green light for FDI?," The Energy Journal, , vol. 39(1_suppl), pages 39-56, June.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:1_suppl:p:39-56
    DOI: 10.5547/01956574.39.SI1.mcos
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.39.SI1.mcos
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.39.SI1.mcos?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
    2. Jordi Paniagua & Juan Sapena, 2015. "Do credit constraints reduce foreign jobs? A note on foreign direct employment," Applied Economics Letters, Taylor & Francis Journals, vol. 22(3), pages 195-198, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jordi Paniagua, 2016. "A note on implementing gravity datasets with abundant zeros," Economics Bulletin, AccessEcon, vol. 36(1), pages 268-280.
    2. Maria Teresa Costa-Campi & Jordi Paniagua & Elisa Trujillo-Baute, 2015. "Are energy market integrations a green light for FDI?," Working Papers 2015/18, Institut d'Economia de Barcelona (IEB).
    3. Mariya Aleksynska & Giovanni Peri, 2014. "Isolating the Network Effect of Immigrants on Trade," The World Economy, Wiley Blackwell, vol. 37(3), pages 434-455, March.
    4. Jules Hugot & Camilo Umana Dajud, 2016. "Trade costs and the Suez and Panama Canals," Working Papers 2016-29, CEPII research center.
    5. Huang, Qiuyue & Li, Zhiyuan, 2024. "Trade and peace: The WTO case," China Economic Review, Elsevier, vol. 83(C).
    6. Thomas L. Vollrath & Mark J. Gehlhar & Charles B. Hallahan, 2009. "Bilateral Import Protection, Free Trade Agreements, and Other Factors Influencing Trade Flows in Agriculture and Clothing," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 298-317, June.
    7. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    8. Anne-Célia Disdier & Lionel Fontagné, 2010. "Trade impact of European measures on GMOs condemned by the WTO panel," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(3), pages 495-514, September.
    9. Erik Marel & Ben Shepherd, 2013. "Services Trade, Regulation and Regional Integration: Evidence from Sectoral Data," The World Economy, Wiley Blackwell, vol. 36(11), pages 1393-1405, November.
    10. Shilpi, Forhad & Umali-Deininger, Dina, 2007. "Where to sell ? market facilities and agricultural marketing," Policy Research Working Paper Series 4455, The World Bank.
    11. Kleimeier - Ros, Stefanie & Qi, Shusen & Sander, H., 2016. "Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage? (RM/15/026-revised-)," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    12. repec:spo:wpecon:info:hdl:2441/2241 is not listed on IDEAS
    13. Tomasz Iwanow & Colin Kirkpatrick, 2007. "Trade facilitation, regulatory quality and export performance," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(6), pages 735-753.
    14. Hylke Vandenbussche & William Connell & Wouter Simons, 2022. "Global value chains, trade shocks and jobs: An application to Brexit," The World Economy, Wiley Blackwell, vol. 45(8), pages 2338-2369, August.
    15. Marco Dueñas & Giorgio Fagiolo, 2013. "Modeling the International-Trade Network: a gravity approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 155-178, April.
    16. Michele FRATIANNI & Chang HOON HO, 2007. "On the Relationship Between RTA Expansion and Openness," Working Papers 288, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    17. Gabriel J. Felbermayr & Benjamin Jung & Farid Toubal, 2010. "Ethnic Networks, Information, and International Trade: Revisiting the Evidence," Annals of Economics and Statistics, GENES, issue 97-98, pages 41-70.
    18. Dutt, Pushan & Mihov, Ilian & Van Zandt, Timothy, 2013. "The effect of WTO on the extensive and the intensive margins of trade," Journal of International Economics, Elsevier, vol. 91(2), pages 204-219.
    19. Marie M Stack & Rob Ackrill & Martin Bliss, 2019. "Sugar trade and the role of historical colonial linkages," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(1), pages 79-108.
    20. Matyas, Laszlo & Balazsi, Laszlo, 2011. "The estimation of three-dimensional fixed effects panel data models," MPRA Paper 34976, University Library of Munich, Germany.
    21. Maria Cipollina & Luca De Benedictis & Luca Salvatici & Claudio Vicarelli, 2016. "Policy Measurement And Multilateral Resistance In Gravity Models," Working Papers LuissLab 16130, Dipartimento di Economia e Finanza, LUISS Guido Carli.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:39:y:2018:i:1_suppl:p:39-56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.