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dc.contributor.authorWarin, Thierryen_US
dc.contributor.authorWunnava, Phanindra V.en_US
dc.contributor.authorJanicki, Hubert P.en_US
dc.description.abstractThis paper presents an empirical assessment of the endogenous optimum currency area theory. Frankel and Rose (1998) study the endogeneity of a currency union through the lens of international trade flows. Our study extends Frankel and Rose's model by using FDI flows to test the original theory developed by Mundell in 1973. A gravity model is used to empirically assess the effectiveness of the convergence criteria by examining location specific advantages that guide multinational investment within the European Union. A fixed effects model based on a panel data of foreign direct investment (FDI) flows within the EU-15 shows that horizontal investment promotes the diffusion of the production process across the national border. Specifically, our results suggest that economic convergence ensured by belonging to the common currency area helps double FDI flows.en_US
dc.publisherInstitute for the Study of Labor (IZA) Bonnen_US
dc.relation.ispartofseriesIZA discussion papers 3739en_US
dc.subject.keywordEconomic integrationen_US
dc.subject.keywordgravity modelen_US
dc.subject.keywordendogenous optimum currency areaen_US
dc.subject.stwOptimaler Währungsraumen_US
dc.subject.stwEuropäische Wirtschafts- und Währungsunionen_US
dc.titleTesting mundell's intuition of endogenous OCA theoryen_US
dc.typeWorking Paperen_US
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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