Essays on foreign direct investment

A popular trend in modern economics is integration. Many countries seek to eliminate barriers in trade, environment and finance, in order to facilitate interaction with other countries. This dissertation seeks to understand the implications of integrating policy on foreign direct investment. We investigate three policies: trade agreements such as the NAFTA, environmental policy and financial integration, through currency unions or dollarization.; Chapter 1 discusses foreign direct investment and the implication of integration. In Chapter 2, we investigate the relationship between trade agreements and FDI. This is done using a fixed-effects gravity model estimation of OECD panel data spanning 1982 to 1997. The data is augmented with a simple dummy variable for the trade agreement. Overall, we find trade integration, such as the NAFTA, encourages FDI. Further, we find country specific evidence for each of the member countries---Mexico, Canada and the U.S.; In Chapter 3, we study the pollution-haven hypothesis in conjunction the NAFTA. The pollution haven hypothesis claims firms are attracted to countries with weak environmental regulations. We first develop a partial equilibrium model of foreign direct investment. Next, we empirically test this model using data on bilateral U.S. outflows of FDI by industry. We find evidence supporting the pollution-haven hypothesis. However, contrary to expectations, the trade agreement dampens, even reverses this effect. We also find indications that industries of all types, not just high polluting industries, are attracted by weak regulations.; Chapter 4 investigates the impact of financial integration on FDI. As in Chapter 2, we use a fixed-effects gravity model estimation of OECD panel data but augmented with exchange rate data. Our research shows volatility in the exchange rate discourages investment. As a result, financial integration, either through currency unions or dollarization, would encourage FDI.; Chapter 2 and Chapter 4 approaches two very different policies, but in strikingly similar fashion. As a result, there is the possibility that each model is capturing the same effect but attributing it to different policies. In Chapter 5, we address this by applying a fixed-effect gravity model which incorporates both the NAFTA dummy variable and the exchange rate variables. We confirm our earlier results.