The Real Effects of the Euro: Evidence from Corporate Investments
53 Pages Posted: 2 Jul 2004
Date Written: May 2005
We study how the adoption of the euro as the common currency in Europe has affected firms' investment rates. Using corporate data from the eleven countries that adopted the euro in January 1999, as well as from a control sample of five other European countries, our paper shows that: (i) the euro has increased investments for firms from countries that previously had weak currencies, (ii) the euro has had a positive impact on financially constrained firms' investments, and (iii) the euro has decreased investments for financially unconstrained firms from countries that previously had strong currencies.
Keywords: EMU, the euro, investments, currency union, financial constraints
JEL Classification: F33, F36, G32
Suggested Citation: Suggested Citation