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New Evidence on Trade and FDI: how Large is the Euro Effect?

Open Economies Review volume 29, pages 451–467 (2018)Cite this article

Abstract

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.

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Notes

  1. See, for instance, Feenstra et al. (2001).

  2. See Anderson and van Wincoop (2003).

  3. The number of observation is (N x N-1 x T) / 2 = (28 × 27 × 23)/2 = 8694. Unfortunately, data on OECD are not complete for the period under analysis, so the number of observations is reduced to 7126, as Table 3 shows.

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Acknowledgments

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].

Author information

Authors and Affiliations

  1. Department of Economics, Jaume I University, Castellón, Spain

    Mariam Camarero

  2. Department of Economics, University of Granada, Granada, Spain

    Estrella Gómez-Herrera

  3. Department of Applied Economics II, University of Valencia, Valencia, Spain

    Cecilio Tamarit

Authors
  1. Mariam Camarero
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  2. Estrella Gómez-Herrera
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  3. Cecilio Tamarit
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Corresponding author

Correspondence to Estrella Gómez-Herrera.

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Camarero, M., Gómez-Herrera, E. & Tamarit, C. New Evidence on Trade and FDI: how Large is the Euro Effect?. Open Econ Rev 29, 451–467 (2018). https://doi.org/10.1007/s11079-018-9479-y

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  • DOI: https://doi.org/10.1007/s11079-018-9479-y

Keywords

  • FDI
  • Trade
  • Euro effect

JEL Classification

  • F10
  • F15