Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86547
Authors: 
Brouwer, Jelle
Paap, Richard
Viaene, Jean-Marie
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-077/2
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.
Subjects: 
EMU
exchange rate volatility
foreign investment
trade diversion
vertical integration
JEL: 
C33
F21
F31
F33
F36
Document Type: 
Working Paper

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