Common Currencies and FDI Flows

Posted: 24 Jun 2008

See all articles by Stefano Schiavo

Stefano Schiavo

University of Trento - Department of Economics and Management; OFCE

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007


The paper investigates the impact of EMU on foreign direct investment flows. Using the option value approach to investment decisions, it is possible to show that exchange rate uncertainty hinders cross-border investment flows. By permanently fixing bilateral exchange rates, a currency union can then be expected to spur international investment. Results from a gravity model on a sample of OECD countries confirm the hypothesis that currency unions have a positive impact on FDI; moreover, adopting the same currency appears to do more than merely eliminating exchange rate volatility. These findings closely resemble those recently obtained in the trade literature.

Keywords: JEL classifications: F15, F21

Suggested Citation

Schiavo, Stefano, Common Currencies and FDI Flows (July 2007). Oxford Economic Papers, Vol. 59, Issue 3, pp. 536-560, 2007, Available at SSRN: or

Stefano Schiavo (Contact Author)

University of Trento - Department of Economics and Management ( email )

via Inama, 5
Trento, 38100


Valbonne, 06560

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics