The Effects of Membership of Currency Unions on Foreign Direct Investment (FDI) Movement

Abstract

In the recent years, there has been a rise in regional integration activities such as membership of currency unions and regional agreements. Therefore, it becomes an important issue to find out how the membership in Currency Unions (CUs) could affect inward and outward investments. This paper aims to examine the effects of currency unions on inflows, outflows and net FDI of different countries. For this purpose, I undertake an empirical investigation of the relevant factors that determine the effects of the membership of CUs on FDI and use pooled OLS estimation method for 180 countries over the period 19702007. My sample consists of 5 currency unions. The empirical findings indicate East Caribbean Currency Area (ECCA) and Economic and Monetary Community of Central Africa (CEMAC) membership increases net FDI of countries. The membership in Eurozone increases both FDI inflows and outflows, with the raise being more significant for the latter.