Common Currencies and FDI Flows
LEM Working Paper Series No. 2005/07
32 Pages Posted: 8 Feb 2005
There are 2 versions of this paper
Common Currencies and FDI Flows
Common Currencies and FDI Flows
Date Written: April 2005
Abstract
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 how 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: EMU, currency union, FDI, uncertainty, investment
JEL Classification: F15, F21
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
What Drives International Bank Flows? Politics, Institutions and Other Determinants
-
By Ashoka Mody, Assaf Razin, ...
-
By Ashoka Mody, Assaf Razin, ...
-
Gains from FDI Inflows with Incomplete Information
By Assaf Razin and Efraim Sadka
-
Lending Booms, Sharp Reversals and Real Exchange Rate Dynamics
-
Which Countries Export FDI, and How Much?
By Assaf Razin, Yona Rubinstein, ...
-
Which Countries Export FDI, and How Much?
By Assaf Razin, Yona Rubinstein, ...
-
Bilateral FDI Flows: Threshold Barriers and Productivity Shocks
By Assaf Razin, Efraim Sadka, ...