Αρχική Σελίδα Αρχική Σελίδα
  Rss Feeds

EXTERNAL ASYMMETRIES IN THE EURO AREA AND THE ROLE OF FOREIGN DIRECT INVESTMENT

 

Nicos Christodoulakis

Athens University of Economics and Business

 

Vassilis Sarantides

Athens University of Economics and Business

 

 

ABSTRACT

A few years after the establishment of the European Economic and Monetary Union (EMU), large asymmetries emerged in the trade balances and the current accounts of the member-states. A divide seems to separate two groups in the euro area, one with the northern countries achieving external surpluses and the other including the southern countries with large external deficits. We argue that a crucial factor in shaping productivity, and consequently affecting competitiveness and the external position of the economy, is the size and composition of Foreign Direct Investment (FDI) and find that the northern countries received more total FDI than the southern group. Moreover, the southern countries attracted more investment in real estate rather than the productive sector. Focusing on ten euro area economies over the period 1980-2009, we establish a positive relationship between FDI flows and trade balances in the northern countries, in contrast to a negative one for the southern group. Using industry-level data, we also establish a positive (negative) long-run relationship between FDI in the manufacturing (non-manufacturing) sector and the trade balance for the northern (southern) countries.

 

JEL Classification: F15, F21

Keywords: Euro area, trade balance, Foreign Direct Investment (FDI)

 

Acknowledgements: We have benefited from comments on an earlier version of this paper in various seminars, including at the Catholic University of Milan, the University of Cyprus, the CRETE Conference in 2010 and the Bank of Greece. In particular we thank Hiona Balfoussia, Sophia Dimeli, Heather Gibson, Steven Hall, Margarita Katsimi, and Eugenia Vella for helpful suggestions. The paper is based on research funded by the Bank of Greece. All views expressed in the paper are solely those of the authors and do not necessarily reflect the position of any other person or institution.

 

 

Correspondence:

Nicos Christodoulakis

Athens University of Economics and Business

Patision Str 76

Athens 10434, Greece.

Tel: ++30-210-8203273

Fax: ++30-210-8221011

E-mail address: nchris@aueb.gr


Πλήρες Κείμενο