Essays on the determinants of foreign direct investment and its impact on home countries

Both policy makers and policy analysts are interested in the extent to which host country policies influences foreign direct investment (FDI). While much work has focused on the impact of government policies on aggregate FDI, little attention has been paid to the possibility that different types of FDI may respond differently to changes in policies. In this dissertation, I investigate whether local policies affect distinct types of FDI in different ways. In addition, I also study whether the FDI undertaken by multinational enterprises (MNEs) generates spillovers to their home countries. In the first chapter, I test the effect of environmental policies in host countries on horizontal, vertical and export-platform FDI. In a simple model I show how different types of FDI respond to a stricter environmental policy. Using U.S. outward FDI in 50 host countries and a survey measure of local environmental regulations, I find a significant deterrent effect of environmental regulations on horizontal and export-platform FDI. Furthermore, I find that in host countries with stricter environmental regulations than U.S. regulations, export-platform FDI exhibits a greater sensitivity to local environmental regulations than horizontal FDI. I extend the analysis in the first chapter to the effect of local corporate tax rates in the second chapter. The empirical evidence suggests that the effect of statutory corporate income tax rates is negative and significant on vertical and export-platform FDI but insignificant on horizontal FDI. The tax effect is found to have grown stronger over time. More importantly, I find that different types of FDI respond in distinct ways to variation in tax rates across "third" countries | all other countries beside the actual host country of FDI. In the third chapter, I investigate the spillovers generated by MNEs when they invest abroad to domestic firms using rm level information from Standard and Poor's Compustat data. Similar to most previous studies on host country spillovers, only spillovers from MNEs to their suppliers are found to be significant. Moreover, the realization of positive spillovers depends on a few rm characteristics, including exporting status, size and absorptive capacity.Ph. D.Includes bibliographical referencesby Jitao Tan