A fresh assessment of the euro effect on outward US FDI

Mariam Camarero, Sergi Moliner and Cecilio Tamarit
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Sergi Moliner: University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón, Spain.

No 2209, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper analyzes the potential determinants of the US stock of outward FDI (OFDI). As our research question is whether the introduction of the euro has changed the pattern of US OFDI, we consider a large group of host countries from different continents, zooming in on the European case, where we analyze different country groupings for the European Union and the Euro Area. With this aim, we estimate a gravity equation using the Pseudo Poisson Maximum Likelihood (PPML) estimator. Furthermore, we use the Bayesian Modelling Averaging (BMA) analysis results in Camarero et al. (2021) as a benchmark for the initial specification. We find that US OFDI is explained by horizontal and vertical FDI motives in all country groups. As for the euro effect, we show that the single currency has prominently promoted US OFDI to the EA members with effects ranging between 10% and 20%. However, while in the core Euro Area, the euro has favored both HFDI and intra-industry VFDI strategies, in the periphery has mainly stimulated pure VFDI.

Keywords: FDI determinants; US; European Union; BMA; PPML (search for similar items in EconPapers)
JEL-codes: C11 F21 F23 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-eec, nep-int and nep-mon
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