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CEP discussion paper
Economic integration, foreign investment and international trade: the effects of membership of the European Union
Randolph Bruno, Nauro Campos, Saul Estrin and Meng Tian November 2017
Paper No' CEPDP1518:
Full Paper (pdf)

JEL Classification: F17; F21; F36

Tags: special economic integration effects; foreign direct investment; international trade; european union; gravity model

This paper investigates the importance of economic integration in simultaneously fostering foreign direct investment (FDI) and international trade. These have rarely been analyzed jointly using contemporary econometric methods. We estimate the effect of European Union (EU) membership on FDI inflows and trade using annual bilateral data from 34 OECD countries over 1985–2013. We find that EU membership increases FDI inflows by on average 28%. We jointly estimate the impact of EU membership on trade and FDI and find that they are substantial, with the one on trade larger than the one on FDI, in the order of double.