The Determinants and Impacts of Foreign Direct Investment MSc Economics Dissertation- London Metropolitan University Delali Accolley MSe (Econ) Supervisor: Dr. Joe Pearlman Some theories on the determinants and impacts of Foreign Direct Investment (FDI) are presented and critically discussed. In the empirical investigationswhich follow this, the effects of some macroeconomic variables such as economic growth, market sze, degree of openness, real effective exchange rate, and labor cost on flows of FDI into the USA have been tested. In the specification of the econometric model, account has been taken of the fact that economic growth could be both a determinant and impact of FDI inflows. The main finding is that economic growth in the USA does not explain the long-run behavior of the FDI inflows equation. It can explain its short run behavior but not sgnificantly. Besides, it hasbeen found that FDI inflowscontribute to economic growth in the USA. Open-market operations have been proposed as economic policy to attract FDI flows‘The Determinants and Impacts of Foreign Direct Investment Delali Accolley accolleyd @excite,comContents hone Chapter 1 11 111 11.2 1.13 12 1.2.1 1.2.2 1.23 1.2.4 13 Chapter 2 24 21.1 24.2 213 2.2 2.2.1 2.2.2 Appendix to Chapter 2 Chapter 3 3.1 3.2 33 Abbreviations and Acronyms Introduction Definitions The compilation of FDI flows A Brief History of FDI ‘The Outline of the Dissertation Summary The Determinants of FDI ‘The Microeconomic Determinants of FDI The Internationalization Model of Uppsala School Vernon’s Product-Cycle Hypothesis ‘The Industrial Organization Theories of FDI ‘The Macroeconomic Determinants of FDI Exchange Rate Economic Growth Market Size Other Determinants Dunning’s Eclectic Theory of FDI Summary” ‘The Impacts of FDI The Impacts of FDI on the Host Country’s Economy Economic Growth Balance of Payments Other Impacts ‘The Impacts of FDI on the Home Country’s Economy Employment Balance of Payments Summary Trade Creation and Trade Diversion versus FDI Empirical Investigations The Models The Economic Assumptions Under! The Data itt ane wen v1 2 12 12 14 15 15 16 16 19 19 19 22 22 23 23 23 23 25 27 27 29 30