The effect of the euro on foreign direct investment

In this paper the recent effect of the European Monetary Union on inward FDI-flows is examined using a difference-in-differences approach. The estimated results show that the introduction of the euro raised inward FDI flows by approximately 16% within the euro area, by approximately 11% to non-members and weakly by around 8% from non-member countries into the euro area. Moreover, the geographical effects of the euro are explored. The results show partial agglomeration tendencies for the euro area. There are also some indications of increased importance of vertical specialization in the sample. (c) 2006 Elsevier B.V. All rights reserved.