Three essays on Foreign Direct Investment (FDI)

This thesis examines the effects of joining currency unions and trade agreements as well as political risk on FDI. It also engages in the empirical examination of the Eclectic Paradigm. The aim of this research is to extend the current knowledge on the determinants of FDI, as various empirical studies have found mixed results. The first empirical chapter investigates the impact of membership of currency unions and trade agreements on FDI inflows, outflows, and net FDI (inflows-outflows) by using pooled OLS estimation method for a sample of 180 countries during the period of 1970 to 2007. The second empirical chapter analyses the impact of political risk on FDI inflows into OECD countries by using pooled OLS estimation and fixed effects panel data methods throughout the period of 1975 to 2009. The third empirical chapter examines the relationship between determinants of FDI from the perspective of Eclectic Paradigm for the sample of 196 countries for the period of 1970 to 2009. My study uses up-to-date large macro datasets for long periods. Insights are provided on the impact of regional trade agreements and currency unions on FDI, a topic on which the literature is relatively scarce. Similarly, another contribution is the analysis of FDI outflows and net FDI, which did not receive much attention in previous studies. This thesis further investigates the impact of political environment in the country on FDI inflows using a wide range of political indicators. Lastly, the investigation presented here confirms the predictions of the Eclectic Paradigm, as ownership, location and internalization-specific advantages seem to play an important role in the investment decisions of MNE. Finally, some implications for investors and governments as well as suggestions for further studies are presented at the end of the thesis.