New Evidence on Trade and FDI: how Large is the Euro Effect?
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In this paper we analyse the effect that the euro has had on trade using a gravity model for 28 countries and covering the period 1990–2013. Our gravity specification includes time-varying fixed effects, correcting any possible bias that may arise from multilateral resistance variables or unobserved time-varying heterogeneity. Additionally, we explore the potential complementarity or substitution relationship between FDI and trade by including FDI inward and outward stocks in the specification. The time period in the dataset covers the creation and evolution of the European Monetary Union (EMU), starting from the introduction of notes and coins and including the recent economic crisis. Overall, our results show a positive effect of the EMU on trade and reveal the existence of a complementary relationship between trade and FDI.
KeywordsFDI Trade Euro effect
JEL ClassificationF10 F15
The authors acknowledge ISCEF Organizing Committee for the opportunity of presenting this article at the 4th International Symposium in Computational Economics and Finance. We also thank the Editor in Chief, the Guest Editor and the anonymous referees for their contribution to the improvement of this paper. Finally, the authors also acknowledge the financing from Spanish MINEIC and FEDER [project ECO2017-83255-C3-3-P].
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