The Real Effects of the Euro: Evidence from Corporate Investments
38 Pages Posted: 21 Sep 2004
Date Written: August 2004
Existing evidence shows that the Economic and Monetary Union (EMU) has reduced the cost of capital for firms in the euro area. We study the impact of the adoption of the euro in January 1999 by 11 countries in Europe on the firms' investment rates, and show that the investment results are consistent with reduction in cost of capital. Using corporate data from the 11 EMU countries, as well as from a control sample of 5 non-EMU European countries, our paper shows that: (i) investments for EMU-firms have grown 2.5% more than for non-EMU firms, after 1999; and (ii) the benefits of the euro accrue especially to small, domestic firms from countries with previously weak currencies.
Keywords: Economic and Monetary Union (EMU), the euro, investments, cost of capital, currency union
JEL Classification: F33, F36, G32
Suggested Citation: Suggested Citation