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The Effect of Euro on Intra-Eurozone FDI Flows
Jönköping University, Jönköping International Business School, JIBS, Economics.
2010 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Since the end of World War II, foreign direct investment (FDI) has been leading the international financial capital flows and has tripled in 2000s over the decade earlier. With its positive effect on economic growth of host countries via spill-overs, it became a race among countries to attract multinational enterprises (MNEs) to invest in their countries. The introduction of European common currency theoretically helps reduce the transaction costs across borders with the reduction of exchange-rate uncertainties and associated costs of hedging, facilitation of international cost comparison. Moreover, mergers and acquisitions activities (M&As) account for 60-80% of FDI flows, and most MNEs engage in both export and setting up affiliates abroad, suggesting complementarity between trade and FDI. Thus reducing cross-border distance costs would encourage MNEs to increase its M&A activities abroad, resulting in more inward FDI flows in the eurozone, especially among member states. The gravity equation is used in this paper to estimate the euro effect from the dataset of inward FDI flows of 24 countries during 1993-2007 and the result confirms that common currency stimulates more intra-eurozone inward FDI flows by approximately 58%.

Place, publisher, year, edition, pages
2010. , p. 29
Keywords [en]
FDI, euro effect, common currency, gravity equation
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-12440OAI: oai:DiVA.org:hj-12440DiVA, id: diva2:322858
Presentation
2010-06-04, B5002, JIBS, 13:30 (English)
Uppsok
Social and Behavioural Science, Law
Supervisors
Available from: 2010-08-04 Created: 2010-06-08 Last updated: 2010-08-04Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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