A Fresh Assessment of the Depth of the “Euro Effect" on US FDI
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Title
A Fresh Assessment of the Depth of the “Euro Effect" on US FDIDate
2024-02-07Publisher
European UnionDOI
10.2873/326776ISBN
978-92-68-12846-6ISSN
2529-332XBibliographic citation
European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, Camarero, M., Moliner, S., Tamarit, C., A fresh assessment of the depth of the “euro effect\ on US FDI , Publications Office of the European Union, 2024, https://data.europa.eu/doi/10.2873/326776Type
info:eu-repo/semantics/conferenceObjectPublisher version
https://EconPapers.repec.org/RePEc:bda:wpsmep:wp2024/18Version
info:eu-repo/semantics/publishedVersionSubject
Abstract
This paper analyzes how European monetary integration has affected US outward FDI (OFDI),
which we call the “euro effect". To this aim, we consider the determinants of OFDI for a large
group of 56 host countries in ... [+]
This paper analyzes how European monetary integration has affected US outward FDI (OFDI),
which we call the “euro effect". To this aim, we consider the determinants of OFDI for a large
group of 56 host countries in different continents from 1985-2019, zooming in on the European
case, where we analyze different country groupings. To capture the “euro effect" we define a
dummy variable that considers Europe’s whole monetary integration process. Furthermore, we
estimate a benchmark specification of a gravity equation derived from a previous Bayesian Modelling
Averaging (BMA) analysis using two estimators, PPML and G-PPML, for robustness. We
find that both horizontal and vertical FDI motives explain US FDI in all country groups. As for
the euro effect, we find that at a worldwide level, the Single Market had a larger impact on US FDI
than the euro. However, once we focus only on the Euro Area (EA), we show that the single currency
has prominently promoted US FDI, with effects ranging between 15% and 64%. However,
while the euro has favored intra-industry VFDI strategies in the EA core, it has mainly stimulated
pure VFDI in the periphery. Our results are robust to different econometric specifications and estimators.
Finally, although both PPML and G-PPML estimators perform similarly well, the latter
provides room for efficiency gains. [-]
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© European Union, 2024
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info:eu-repo/semantics/openAccess