Working Paper: CEPR ID: DP4521
Authors: Arturo Bris; Yrj Koskinen; Mattias Nilsson
Abstract: Existing evidence shows that the Economic and Monetary Union (EMU) has reduced the cost of capital for firms in the euro area. We study the impact of the adoption of the euro in January 1999 by 11 countries in Europe on the firms? investment rates, and show that the investment results are consistent with reduction in cost of capital. Using corporate data from the 11 EMU countries, as well as from a control sample of 5 non-EMU, European countries, our paper shows that: (i) investments for EMU-firms have grown 2.5% more than for non-EMU firms, after 1999; and (ii) the benefits of the euro accrue especially to small, domestic firms from countries with previously weak currencies.
Keywords: Cost of capital; Currency union; Economic and monetary union (EMU); Investments; The euro
JEL Codes: F33; F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adoption of the euro (F36) | Increase in corporate investments in EMU countries (F21) |
| Reduction in cost of capital (G32) | Increase in corporate investments in weak euro countries (F21) |
| Adoption of the euro (F36) | Reduction in cost of capital (G32) |
| Increase in corporate investments in weak euro countries (F21) | Increase in internal investments (E22) |