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The Effect of the Euro on Foreign Direct Investment

Author

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  • Pavlos Petroulas

    () (Bank of Greece, Economic Research Department)

Abstract

In this paper the recent effect of the European Monetary Union on inward FDI-flows is examined. We use a difference-in-differences approach for both a gravity based- as well as a general equilibrium approach. The estimated results show that the introduction of the euro raises inward FDI by 14 to 16 percent within the euro area by 11 to 13 percent from non-member and weakly by 8 percent to non-member countries. Moreover the geographical effects of the euro are explored. The results show partial agglomeration tendencies for the euro area. There are also some indications of increased importance of vertical specialization in the sample.

Suggested Citation

  • Pavlos Petroulas, 2006. "The Effect of the Euro on Foreign Direct Investment," Working Papers 48, Bank of Greece.
  • Handle: RePEc:bog:wpaper:48
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    More about this item

    Keywords

    Foreign Direct Investment; EMU; Panel Data;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F0 - International Economics - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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