Is energy market integration a green light for FDI?

This paper contributes to a better understanding of the effects of the European single market strategy by studying the effect of energy market integration (EMI) on foreign direct investment (FDI). Enforcing an EMI diminishes energy uncertainty and price volatility and signals stronger and credible i...

Full description

Bibliographic Details
Authors: Costa, M. Teresa (Maria Teresa), 1951-, Paniagua, Jordi, Trujillo-Baute, Elisa
Format: article
Status:Versión aceptada para publicación
Publication Date:2018
Country:España
Institution:Universidad de Barcelona
Repository:Dipòsit Digital de la UB
OAI Identifier:oai:diposit.ub.edu:2445/134426
Online Access:https://hdl.handle.net/2445/134426
Access Level:Open access
Keyword:Energia
Recerca industrial
Innovacions tecnològiques
Energy
Industrial research
Technological innovations
id ES_be09fcbf6743d25f67ee4e50429a5f72
oai_identifier_str oai:diposit.ub.edu:2445/134426
network_acronym_str ES
network_name_str España
repository_id_str
spelling Is energy market integration a green light for FDI?Costa, M. Teresa (Maria Teresa), 1951-Paniagua, JordiTrujillo-Baute, ElisaEnergiaRecerca industrialInnovacions tecnològiquesEnergyIndustrial researchTechnological innovationsThis paper contributes to a better understanding of the effects of the European single market strategy by studying the effect of energy market integration (EMI) on foreign direct investment (FDI). Enforcing an EMI diminishes energy uncertainty and price volatility and signals stronger and credible institutions. FDI may, as a result, increase both within and outside the EMI area through two channels: first, via energy price converge and, second, via price dispersion reduction. We develop a formal model to explain how these mechanisms affect the capital invested abroad by heterogeneous firms. The Iberian Electricity Market (MIBEL) integration of 2007 is used to quantify the effect of EMI on FDI empirically. Gravity estimates on a global dataset including bilateral FDI data show that the integration of Portugal and Spain's electricity market increased both the amount of FDI's participants and the number of foreign projects. In line with our theoretical expectations, our estimates show that the increase of FDI is mainly due to the reduction in price dispersion. However, the institutional credibility signal sent by MIBEL had a greater influence than expected by the actual price reduction. Furthermore, we also observe a positive increase in FDI from neighboring countries (in this instance, France), albeit lower in magnitude.International Association for Energy Economics2018info:eu-repo/semantics/articleinfo:eu-repo/semantics/acceptedVersionapplication/pdfhttps://hdl.handle.net/2445/134426Articles publicats en revistes (Economia)reponame:Dipòsit Digital de la UBinstname:Universidad de BarcelonaInglésVersió postprint del document publicat a: https://doi.org/10.5547/01956574.39.SI1Energy Journal, 2018, vol. 39, num. Special Issue 1, p. 39-56https://doi.org/10.5547/01956574.39.SI1(c) International Association for Energy Economics, 2018info:eu-repo/semantics/openAccessoai:diposit.ub.edu:2445/1344262026-05-27T06:46:51Z
dc.title.none.fl_str_mv Is energy market integration a green light for FDI?
title Is energy market integration a green light for FDI?
spellingShingle Is energy market integration a green light for FDI?
Costa, M. Teresa (Maria Teresa), 1951-
Energia
Recerca industrial
Innovacions tecnològiques
Energy
Industrial research
Technological innovations
title_short Is energy market integration a green light for FDI?
title_full Is energy market integration a green light for FDI?
title_fullStr Is energy market integration a green light for FDI?
title_full_unstemmed Is energy market integration a green light for FDI?
title_sort Is energy market integration a green light for FDI?
dc.creator.none.fl_str_mv Costa, M. Teresa (Maria Teresa), 1951-
Paniagua, Jordi
Trujillo-Baute, Elisa
author Costa, M. Teresa (Maria Teresa), 1951-
author_facet Costa, M. Teresa (Maria Teresa), 1951-
Paniagua, Jordi
Trujillo-Baute, Elisa
author_role author
author2 Paniagua, Jordi
Trujillo-Baute, Elisa
author2_role author
author
dc.subject.none.fl_str_mv Energia
Recerca industrial
Innovacions tecnològiques
Energy
Industrial research
Technological innovations
topic Energia
Recerca industrial
Innovacions tecnològiques
Energy
Industrial research
Technological innovations
description This paper contributes to a better understanding of the effects of the European single market strategy by studying the effect of energy market integration (EMI) on foreign direct investment (FDI). Enforcing an EMI diminishes energy uncertainty and price volatility and signals stronger and credible institutions. FDI may, as a result, increase both within and outside the EMI area through two channels: first, via energy price converge and, second, via price dispersion reduction. We develop a formal model to explain how these mechanisms affect the capital invested abroad by heterogeneous firms. The Iberian Electricity Market (MIBEL) integration of 2007 is used to quantify the effect of EMI on FDI empirically. Gravity estimates on a global dataset including bilateral FDI data show that the integration of Portugal and Spain's electricity market increased both the amount of FDI's participants and the number of foreign projects. In line with our theoretical expectations, our estimates show that the increase of FDI is mainly due to the reduction in price dispersion. However, the institutional credibility signal sent by MIBEL had a greater influence than expected by the actual price reduction. Furthermore, we also observe a positive increase in FDI from neighboring countries (in this instance, France), albeit lower in magnitude.
publishDate 2018
dc.date.none.fl_str_mv 2018
dc.type.none.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/acceptedVersion
format article
status_str acceptedVersion
dc.identifier.none.fl_str_mv https://hdl.handle.net/2445/134426
url https://hdl.handle.net/2445/134426
dc.language.none.fl_str_mv Inglés
language_invalid_str_mv Inglés
dc.relation.none.fl_str_mv Versió postprint del document publicat a: https://doi.org/10.5547/01956574.39.SI1
Energy Journal, 2018, vol. 39, num. Special Issue 1, p. 39-56
https://doi.org/10.5547/01956574.39.SI1
dc.rights.none.fl_str_mv (c) International Association for Energy Economics, 2018
info:eu-repo/semantics/openAccess
rights_invalid_str_mv (c) International Association for Energy Economics, 2018
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv International Association for Energy Economics
publisher.none.fl_str_mv International Association for Energy Economics
dc.source.none.fl_str_mv Articles publicats en revistes (Economia)
reponame:Dipòsit Digital de la UB
instname:Universidad de Barcelona
instname_str Universidad de Barcelona
reponame_str Dipòsit Digital de la UB
collection Dipòsit Digital de la UB
repository.name.fl_str_mv
repository.mail.fl_str_mv
_version_ 1869418252255363072
score 15,300719

Similar Items