Dissertation Defenses

Doctoral Dissertation Announcement

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Candidate: Blen Solomon

Degree of: Doctor of Philosophy

Department: Economics

Title: Three Essays on the Impacts of Risk and Uncertainty on Foreign Direct Investment (FDI) and Remittances Flows into Developing Countries

Committee:
Dr. Sisay Asefa, Chair
Dr. Debasri Mukherjee
Dr. Donald J. Meyer
Dr. Adugna Lemi

Date: Friday, August 17, 2007 10:00 a.m. – 12:00 p.m.
5302 Friedmann Hall

Abstract:
This three-essay dissertation focuses on the two most important and most stable sources of finance to developing countries, namely Foreign Direct Investment (FDI) and remittances. The first essay examines the roles of exchange rate uncertainty and political risk in determining FDI inflows into African economies. The past few decades have witnessed a surge of FDI inflows to developing regions. However, FDI inflows to Africa still remain relatively small and investor surveys show political risk and macroeconomic uncertainty to be strong deterrents of FDI inflows into Africa. In this essay, I use a sample of 12 African countries and employ Fixed Effect and Arellano-Bond GMM estimators to investigate the impact of exchange rate uncertainty and political risk on FDI inflows into African economies. The results confirm the predictions of the theoretical model presented, showing both macroeconomic uncertainty and political risk to be deterrents of FDI inflows into these African economies. (over)
The second essay is concerned with the unbalanced FDI inflow patterns across developing regions.1 In addition to the traditional determinants of FDI, such as infrastructure development, market size, and labor force availability, the question of whether political risk and exchange rate uncertainty play a role in determining these patterns is addressed. This essay employs data on FDI inflows into Africa, Asia, and Latin America to conduct a cross-region comparison on the impacts of risk and uncertainty on FDI inflows. Parametric as well as semiparametric results show that risk affects FDI into Africa more severely than other developing regions. In addition, it is shown that even after controlling important FDI determinants, African countries receive less FDI compared to other developing countries.
The third essay focuses on remittances which are becoming an increasingly important and highly stable source of external finance for many developing countries. The stable and counter-cyclical nature of remittances exerts a stabilizing influence and helps insulate vulnerable developing countries from economic shocks. Hence, the third essay analyzes the effects of uncertainty and risk in affecting remittances inflows into these economies. This essay mainly focuses on Latin America since it is now the main remittance recipient region in the world.

1. For example, in 2004 Africa received 8% of total FDI inflows to developing countries, while Asia and Latin America received 68% and 23% respectively.