Does the creation of the euro partly explain the sharp increase in European investments? To address this question, we derive a simple gravity-like model for bilateral foreign direct investment (FDI). Using this model, we find that the Economic and Monetary Union (EMU) has increased intra-EMU FDI stocks on average by around 30 percent. This effect varies over time and across EMU members. It is found to be larger for the outward investments of the less-developed EMU members. Moreover, contrary to early expectations of FDI diversion effects, EMU countries have invested more in non-EMU countries since the launch of the euro.

No abstract

Does colonisation explain differences in trade performance across developing countries? In this paper, we analyse the differential impact of British versus French colonial legacies on the current trade of African ex-colonies. We initially find that former British colonies trade more, on average, than do their French counterparts. This difference might be the result of the relative superiority of British institutions. However, a core concern is the non-random selection of colonies by the British. Historians argue that with Britain, trade preceded colonisation. Using an instrument based on colonisation history to control for this endogeneity, we find no evidence of a systematic difference between the British and French colonial legacies with respect to trade. This finding suggests that the apparent better performance of British ex-colonies might be instead explained by pre-colonial conditions.

Borders, gravity, currency unions,