Date of Award

Summer 7-17-2014

Document Type

Thesis

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Keith E. Maskus

Second Advisor

Murat Iyigun

Third Advisor

Xiaodong Liu

Abstract

This dissertation seeks to reinforce our understanding of an important role of demand-side in determining foreign direct investment (FDI). To do so, it both theoretically and empirically extends the standard Knowledge-Capital (KC) approach, which is now a widely-adopted comprehensive framework to analyze overseas investment decisions of multinational enterprises (MNEs). It provides theoretical foundation and empirical evidence on main topic of the dissertation that per-capita income is closely related to location and production decisions of MNEs.

Chapter 2 develops a theoretical model to examine the roles of demand-driven factors and provides testable predictions driven from numerical simulation results. Therefore, it plays a role of producing theoretical explanation for a link between per-capita income and overseas investment decisions of MNEs.

Chapter 3 tests the hypotheses from the chapter 2, particularly the Linder hypothesis for FDI, for Korean multinationals' experiences. It shows that empirical results from System GMM estimation technique are consistent with the theoretical predictions driven from the chapter 2. It is estimated that a 10% decrease in per-capita income divergences between Korea and an average host country leads to a 8.6% rise in Korean overseas direct investment. There was no change in the main results both across different specifications and for the U.S. FDI experiences.

The final chapter empirically examines the determinants for sectoral FDI and compares their influences in the manufacturing and services sectors. It shows distinct features of each sector makes a difference in relative importance of FDI determinants between the two sectors.

Included in

Economics Commons

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