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Common Currencies and FDI Flows
2005
Social Science Research Network
The paper investigates the impact of currency unions on foreign direct investment flows. Using the option value approach to investment decisions, it is possible to show how exchange rate uncertainty hinders cross-border investment flows. By permanently fixing bilateral exchange rates, a currency union can then be expected to spur international investment. Empirical support is provided by means of a gravity model on a panel of 300 country-pairs followed for 22 years . Results confirm the
doi:10.2139/ssrn.655821
fatcat:gzoln7bykbfkdmccmha2khczaa