The Trade and FDI Effects of EMU Enlargement

Jelle Brouwer, Richard Paap and Jean-Marie Viaene

No 2123, CESifo Working Paper Series from CESifo

Abstract: This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the ten countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a dataset of unbalanced panel data that combines bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depends on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5 percent for Poland and 30 percent for Hungary.

Keywords: EMU; exchange rate volatility; foreign investment; trade diversion; vertical integration (search for similar items in EconPapers)
JEL-codes: C33 F21 F31 F33 F36 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The trade and FDI effects of EMU enlargement (2008)
Working Paper: The Trade and FDI Effects of EMU Enlargement (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2123

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