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Intra Eurozone Foreign Direct Investment and Deflation

Ioanna Τ. Kokores (), Constantina Kottaridi () and Pantelis Pantelidis ()
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Ioanna Τ. Kokores: University of Piraeus

International Advances in Economic Research, 2017, vol. 23, issue 2, No 7, 217-229

Abstract: Abstract After the recent economic turmoil, besides the severe recession that hit most European Union (EU) countries, and the resulting downward trend in inflation, foreign direct investment (FDI) levels in certain EU countries have bounced back. Hence, we evaluate the effect of deflation on intra-Eurozone FDI. Even though deflation tends to cause a negative effect on investment, low production cost opportunities may arise, thus attracting inward FDI. Using panel data that span from 2003 to 2015, we initially estimate an FDI equation that incorporates deflation as a pre-determined variable and, consequently, a two-equation model that treats both FDI and deflation as endogenous variables. Our results suggest that deflation in periphery Eurozone countries does not deter FDI flows from core to periphery Eurozone countries.

Keywords: Deflation; Foreign direct investment; European Union (search for similar items in EconPapers)
JEL-codes: E31 F21 F23 O52 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11294-017-9629-9

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