The Impact of the Euro on Inward FDI in Euro Area

Abstract

Purpose - The Purpose of this study was to analyze the effects of the introduction of the euro on inward FDI in euro countries. Design/methodology/approach - This study 609 panel data for 18 euro and 11 non-euro countries and 21 years (1996-2016). The Panel regression analysis was hired in order to analyze the data. Findings - First, our results indicate the positive influence of the introduction of euro on inward FDI. The results show that the introduction of euro was statistically significant and had a quite substantial effect on inward FDI in euro countries. We conclude that the euro has a positive impact on the FDI between euro countries as well as on FDI movement from non-euro countries to euro countries. Second, European economic integration has also exerted a positive effect on inward FDI in euro countries. Research implications or Originality - The current findings suggest that trade liberalization-through the Single Market and introduction of euro - induced global firms can result in more investment in EU and euro area countries. It must be noted that the most important determinant of inward FDI in euro countries is market size. The greater the GDP of the receiving country, the larger are the foreign direct investments. .