Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2007-10-04 Number: 07-077/2 Author-Name: Jelle Brouwer Author-Name: Richard Paap Author-Email: paap@ese.eur.nl Author-Name: Jean-Marie Viaene Author-Email: viaene@ese.eur.nl Author-Workplace-Name: Erasmus University Rotterdam Title: The Trade and FDI Effects of EMU Enlargement 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 10 countries that obtained EU membership in 2004. One-way and two-way error component gravity models are estimated using a data set of unbalanced panel data that combine 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 depend 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% for Poland and 30% for Hungary.

This discussion paper has resulted in a publication in the Journal of International Money and Finance, 2008, 27(2), 188-208. Classification-JEL: C33; F21; F31; F33; F36 Keywords: EMU; exchange rate volatility; foreign investment; trade diversion; vertical integration File-Url: https://papers.tinbergen.nl/07077.pdf File-Format: application/pdf File-Size: 546337 bytes Handle: RePEc:tin:wpaper:20070077