Monetary Integration Effects on Foreign Direct Investments in New EU Member States

Ismar Velić () and Igor Cvecic ()
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Ismar Velić: Faculty of Economics and Business, University of Rijeka, Croatia, Postal: Faculty of Economics and Business University of Rijeka Ivana Filipovića 4 51000, Rijeka Croatia
Igor Cvecic: Faculty of Economics and Business, University of Rijeka, Croatia, Postal: Faculty of Economics and Business University of Rijeka Ivana Filipovića 4 51000 Rijeka Croatia

Journal of Economic Integration, 2024, vol. 39, issue 1, 55-85

Abstract: This study examines the impact of accession to the Economic and Monetary Union (EMU) on foreign direct investment (FDI) inflows in the 11 New Member States (NMS), during the period 2005-2018. Using panel regression analysis and the gravity model, the influence of macroeconomic indicators on FDI outflows from 21 industrialised countries (including EU and non-European counties, such as Japan and USA) to the NMS is assessed. The empirical results suggest that favourable macroeconomic indicators in the NMS, such as a stable exchange rate, lower inflation, long-term interest rates and EU/EMU membership, are positively correlated with FDI inflows from NMS. Conversely, rising inflation and exchange rate volatility in the NMS are negatively associated with FDI inflows, while inflation in the FDI origin countries is positively correlated with investment in the NMS. The results suggest that joining the EMU has a statistically significant and positive relationship on FDI inflows to the NMS

Keywords: foreign direct investments - FDI; monetary integration; European economic integration (EU and EMU); gravity model; panel-regression analysis (search for similar items in EconPapers)
JEL-codes: C23 E12 F15 F21 N31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0894

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