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Dissertation Committee:
Daniel Münich (chair)
Randall Filer
Štěpán Jurajda

Abstract:

The first part of this dissertation evaluates the impact of a large and territorially concentrated foreign direct investment (FDI) inflow on local labor market outcomes in the Czech Republic. A difference-in-differences technique is employed for estimating the impact of a joint investment of Toyota and Peugeot on local labor market indicators. The results indicate a positive and statistically as well as economically significant effect of a large investment project on the local unemployment outflow rate, which is driven mainly by increases in the aggregate unemployment exit hazard rates for unemployment durations smaller than nine months. However, the impact on long-term unemployed was negligible. Moreover, a simple cost–benefit analysis suggests that investment incentives paid from a state budget would pay off only in a horizon of twelve years.

In the second chapter, I analyze the causal effect of investment incentives on regional allocation of FDI in the Czech Republic during 2001–2007. An institutional setup of investment incentives provided foreign investors with financial incentives depending on the particular district's unemployment rate. The identification strategy is based on a regression-discontinuity approach, as the scheme's design introduces three unemployment thresholds differentiating the amount of the subsidy. The results indicate a positive effect of the investment scheme, but this impact is concentrated only at the lowest available unemployment threshold. No impact at higher unemployment thresholds is found. Attracting FDI into the most distressed regions, therefore, remains an important challenge for policymakers.

The last chapter provides an evaluation of the introduction of the euro on international FDI flows. Previous empirical literature has often suffered from a short time span and imperfect identification strategy. This paper analyzes the impact of the euro on FDI flows between 35 OECD economies during 1997–2008 by adopting propensity score matching as an identification strategy. In general, the euro exhibits no significant impact on FDI. However, the impact becomes significant on a subset of EU countries. Furthermore, EU membership fosters FDI flows much more than does the euro. Among other FDI determinants, high gross domestic product, close proximity between countries, and low unit labor costs in the target country have a positive effect on FDI.

Full Text: “Essays on Labor Economics: Labor Market Laboratory in Central Europe” by Marián Dinga