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Dissertation Committee:
Jan Hanousek (chair)
Štěpán Jurajda
Evžen Kočenda
Krešimir Žigić

Abstract:

In the first chapter of this work, I propose a simple theoretical model describing how the in-flow of foreign direct investment (FDI) in a host country influences local competitors within the industry, and subsequently, what the impact of this change is on input supplying firms in the up-stream sector. The model improves on existing theoretical work by incorporating two previously omitted factors: trade in intermediary goods and heterogenous efficiency of firms. The main con-clusion is that FDI inflow has the potential to increase the demand for intermediary goods even though some of the old customers among the domestic firms are crowded out from the market. This effect is offset by the increased production of multinational enterprises (MNEs).

In the second chapter, I discuss the fact that even though the presence of a foreign firm is considered to have strong potential to improve domestic economic conditions, including the perfor-mance of domestic firms within the sector where MNEs enter, empirical studies of the actual impact of FDI inflow on domestic firms present rather ambiguous results. I argue that this is due to some limitations of the most prevalently used methodology, which does not separate the FDI spillover effects from changes in the competitive environment faced by domestic firms. In my research, I propose a novel estimation strategy that allows me to disentangle FDI spillovers from the effects of changing competition in response to the entry of a foreign firm. I consider this issue on the industry level, and I compare the effects of FDI to the impact of international trade on the domestic econo-my. My identification strategy leads me to confirm the presence of positive spillovers stemming from FDI.

In the last chapter, I describe sourcing patterns of FDI activity and test empirically whether their impact on upstream sectors of the host economy is as predicted by theoretical models. My aim is to fill a significant gap that exists in the empirical literature concerning this particular issue and to provide conclusions that could support potential policy recommendations. I focus on inter-industry interactions between an MNE, which enters the domestic market and other firms in the economy within the broader context of international trade flows: I seek to determine if the MNE uses domes-tic suppliers of intermediate goods, or if it purchases its supplies from abroad or from other MNEs entering the downstream sector.

My empirical analysis in the second and third chapters cover the time period 2001 – 2007 and concerns both Western and Eastern European countries.

Full Text: “Essays on International Economics” by Pavla Nikolovová