Every Flow Must Have Its Ebb - The Impact of the Financial Crisis on FDI Flows: A Comparison Between Euro and Non-Euro Countries

Sammanfattning: Previous research has found that the euro increases FDI flows, yet the evidence of to what extent the EMU membership enhances FDI flows differs between studies. This thesis aims to estimate the impact the financial crisis has had on FDI flows and to further compare the impact the crisis has had on the euro countries to non-euro countries. Bilateral FDI data for both inflows and outflows for the OECD countries between the years 2005 and 2018 were estimated through the gravity model, employing different estimation methods for robustness checks, each with country- and time- fixed effects. We noticed a tendency for a larger negative impact of the financial crisis for the eurozone compared to the OECD countries. Yet, we could not confirm these results with the most robust method. The conclusion entails that the positive effects of belonging to a currency union does not balance out the negative impacts of the financial crisis, instead the financial crisis together with the macroeconomic imbalances within the eurozone, became the origin for the European Sovereign Debt Crisis.