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" Sector-level FDI in the resource-rich Andean countries : "
Gomez, Jimena Gonzalez
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Latin Dissertation
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| Record Number
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1099081
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TLets561286
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| Main Entry
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Gomez, Jimena Gonzalez
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| Title & Author
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Sector-level FDI in the resource-rich Andean countries :\ Gomez, Jimena Gonzalez
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| College
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University of Reading
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| Date
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2011
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| student score
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2011
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| Degree
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Ph.D.
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| Abstract
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In the face of tightened loans from commercial banks, skyrocketing interest rates, reducedexport demand, and weak domestic industries, the countries of the Andean Community(Ancom) turned their eyes, in the early 1990s, to the promise of FOI. Paradoxically, despitethe success of the incentives put in place to attract FOI, Ancom failed to attract the soughtafter technology flows that would assist them in diversifying their exports, strengtheningtheir industry, and retaining a higher portion of the value-added activities in the productionchain. FOI was mainly directed to economic sectors entailing enclave-type activities withweak linkages to the rest of the economy as well as often low levels of local processing ofresources, unstable international prices, low tax income for non-renewable resources, andenvironmental contamination. The aim of this thesis is to investigate, first, what are thehistorical sector-level FOI patterns of inward FOI in Ancom; and second, what are theirdeterminants. In particular, we explore the role that local political and civil institutions playin determining inward FOI, and whether this role varies from one sector to another.We present a newly compiled dataset of inward FDI stocks, disaggregated by eight welldefinedeconomic sectors within each country. The contributions of this dataset are, first,unprecedented time coverage, extending for an entire extra decade, the 1980s, for thecountries of Colombia and Peru, for every disaggregated economic sector; second, thepresentation of previously unpublished FDI stock data for the Colombian oil and petroleumsector; and third, the reorganisation of the existing individual country datasets into acomprehensive regional dataset. The outcome is the creation of the strongest availablestatistical foundation, based on published as well as unpublished figures from officialsources.From an econometric perspective our analysis uses techniques that allow exploring nonstationaryprocesses such as the analysis of stochastic and time trends, cointegration, andvector-error-correction models. Key findings include the importance of the quality of theinstitutional quality of a country in determining the industrial structure of inward FOI.Furthermore, we find that institutions are multidimensional and, as such, changes in thequality of different institutions often play conflicting roles in determining sector-level FDI. Inthe sectors of: Mining, Utilities, and Communications and Transport, FDI is associated withlow levels of political rights, and high levels of civil liberties, whilst, the opposite holds forFOI in Agriculture, Manufacturing , Construction, Finance and Oil/Petroleum. Market sizeand trade openness are found to be important determinant in most sectors, whilst wagesare either insignificant or inversely related to FOI.We also examine, from a historical perspective, the political economy surrounding changesin FOI policy as well as the evolving FDI trends, made available by the new dataset. We find,on the one hand, that the degree of political sensitivity to liberalisation, at sector-level,determines the availability and contract-modality of opportunities for foreign investors. Onthe other hand, geographical characteristics of each sector determine the type of politicalenvironment that is most conducive to increases in FDI. For this purpose we propose anextension of the definition of key geographical characteristics. We present an originalframework, matching the two dimensions of sector-level characteristics to FDI contractmodalityand political-conducive environment to increased FDI.
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| Subject
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Foreign direct investment
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University of Reading
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