FDI Flows in EU Countries: The Role of Common Currency and Uncertainty

FDI Flows in EU Countries: The Role of Common Currency and Uncertainty Essay example
Masters
Essay
Finance & Accounting
Pages 33 (8283 words)
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Globalisation and rapid technological developments are the primary vehicles enabling the flow of investment to move from one country to another with relative ease. …

Introduction

The liberalisation of the market, financial liberalisation, government policies and regional agreements and integration have contributed to the continued increase of FDI in Europe in particular and around the world in general (Coeurdacier, De Santis and Aviat 2009).
Since the introduction, of Euro as the common currency among country members of the European Union, hopes for closer economic integration and political cooperation are heightened within the European Union (Henning 2007). Having a common currency within the Euro zone, is a fundamental issue among country members (De Souza and Lochard 2006) not only because the Euro plays a pivotal role in international transactions, especially with countries who have pegged their denomination with the Euro, but more so because a common currency has a positive effect on trade (Micco et al. 2003). However, when it comes to the impact of the Euro vis-a-vis FDI within the EU, minimal studies have been conducted (De Souza and Lochard 2006).
FDI contributes in the creation of economic stimulus that can propel economic growth and development. The European Commission (2009), in a study confirms that FDI has a direct and positive effect to investments, production and export as evidenced by continued increased in these sectors of the country. At the same time, technological spillover, competitiveness and management techniques are valuable indirect effects of FDI within the EU (European Commission 2009). In this regard, understanding the impact of the Euro in the FDI flows within the Euro zone is integral in apprehending the advantages and benefits in adopting a common Euro. ...
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