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A fresh assessment of the depth of the “euro effect" on US FDI
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A fresh assessment of the depth of the “euro effect" on US FDI

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This paper analyzes how European monetary integration has affected US outward FDI (OFDI), which we call the “euro effect". To this aim, we consider the determinants of OFDI for a large group of 56 host countries in different continents from 1985-2019, zooming in on the European case, where we analyze different country groupings. To capture the “euro effect" we define a dummy variable that considers Europe’s whole monetary integration process. Furthermore, we estimate a benchmark specification of a gravity equation derived from a previous Bayesian Modelling Averaging (BMA) analysis using two estimators, PPML and G-PPML, for robustness. We find that both horizontal and vertical FDI motives explain US FDI in all country groups. As for the euro effect, we find that at a worldwide level, the Single Market had a larger impact on US FDI than the euro. However, once we focus only on the Euro Area (EA), we show that the single currency has prominently promoted US FDI, with effects ranging between 15% and 64%. However, while the euro has favored intra-industry VFDI strategies in the EA core, it has mainly stimulated pure VFDI in the periphery. Our results are robust to different econometric specifications and estimators. Finally, although both PPML and G-PPML estimators perform similarly well, the latter provides room for efficiency gains.
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ISSN 2529-332X
ISBN 978-92-68-12846-6
DOI 10.2873/326776
Katalognummer ET-AF-24-002-EN-N
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ISSN 2529-332X ISBN 978-92-68-12846-6 DOI 10.2873/326776 Katalognummer ET-AF-24-002-EN-N
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