Candidate:Adugna Lemi

Degree of: Doctor of Philosophy

Department: Economics

Title: Foreign Direct Investment in Developing Countries: Uncertainty, Trade and Welfare

Committee:
Professor Sisay Asefa, Chair
Dr. Michael Ryan
Dr. Matthew Higgins
Professor Inayat Mangla

Date: Thursday, October 24, 2002 2:00 - 4:00 p.m.
5302 Friedman

Abstract:
This is a three-essay Theses, whose objectives are to: first, analyze the role of economic and political uncertainty in affecting Foreign Direct Investment (FDI) flow, second, test competing hypotheses that explain the determinants of sales of multinational firms affiliates to alternative destinations, and third, investigate the welfare impact of FDI flow on local firms in a host country. These issues are interrelated, as uncertainty is the main impediment in developing countries that retards the effort of attracting foreign direct investment, and it in turn affects business practices of foreign affiliates in a host country. The combined effects of uncertainty and business practices of affiliates firms can be reflected on the welfare effects of foreign affiliates on local firms in developing countries.
The results of the study reveal that economic and political uncertainty impedes the flow of FDI only when combined with other instability indicators such as debt burden. Due to these impacts of uncertainty and the motives for international tax minimization, affiliates of multinational firms trade more with other affiliate firms than non-affiliates at different destinations. Efficiency motives are also observed in host countries where there is better infrastructure and skilled labor. Such business practices of affiliates firms affect the extent of the spillover effects on local firms. The test for productivity and export spillover effects from the United States and Japanese firms shows no positive impact on a sample of developing countries.

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