The currency union effect on trade and the FDI channel

José de Sousa () and Julie Lochard

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: The positive effect of a common currency on trade is empirically well-documented, but the reason of this effect remains unclear. In this paper, we argue that part of the currency union effect on trade is indirect. Currency unions foster foreign direct investment (FDI), which promotes trade due to complementary effects between trade and FDI. Using data for 22 OECD countries, we find that half of the euro impact on trade is driven by additional FDI.

Keywords: Currency union; trade; FDI. (search for similar items in EconPapers)
JEL-codes: F15 F21 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-ifn
Date: 2004-11
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Persistent link: http://EconPapers.repec.org/RePEc:mse:wpsorb:j04111

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