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Title: Sector-level FDI in the resource-rich Andean countries : an institutional perspective
Author: Gomez, Jimena Gonzalez
ISNI:       0000 0004 2725 1432
Awarding Body: University of Reading
Current Institution: University of Reading
Date of Award: 2011
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In the face of tightened loans from commercial banks, skyrocketing interest rates, reduced export 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, despite the success of the incentives put in place to attract FOI, Ancom failed to attract the sought after technology flows that would assist them in diversifying their exports, strengthening their industry, and retaining a higher portion of the value-added activities in the production chain. FOI was mainly directed to economic sectors entailing enclave-type activities with weak linkages to the rest of the economy as well as often low levels of local processing of resources, unstable international prices, low tax income for non-renewable resources, and environmental contamination. The aim of this thesis is to investigate, first, what are the historical sector-level FOI patterns of inward FOI in Ancom; and second, what are their determinants. In particular, we explore the role that local political and civil institutions play in 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 welldefined economic sectors within each country. The contributions of this dataset are, first, unprecedented time coverage, extending for an entire extra decade, the 1980s, for the countries of Colombia and Peru, for every disaggregated economic sector; second, the presentation of previously unpublished FDI stock data for the Colombian oil and petroleum sector; and third, the reorganisation of the existing individual country datasets into a comprehensive regional dataset. The outcome is the creation of the strongest available statistical foundation, based on published as well as unpublished figures from official sources. From an econometric perspective our analysis uses techniques that allow exploring nonstationary processes such as the analysis of stochastic and time trends, cointegration, and vector-error-correction models. Key findings include the importance of the quality of the institutional quality of a country in determining the industrial structure of inward FOI. Furthermore, we find that institutions are multidimensional and, as such, changes in the quality of different institutions often play conflicting roles in determining sector-level FDI. In the sectors of: Mining, Utilities, and Communications and Transport, FDI is associated with low levels of political rights, and high levels of civil liberties, whilst, the opposite holds for FOI in Agriculture, Manufacturing , Construction, Finance and Oil/Petroleum. Market size and trade openness are found to be important determinant in most sectors, whilst wages are either insignificant or inversely related to FOI. We also examine, from a historical perspective, the political economy surrounding changes in 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. On the other hand, geographical characteristics of each sector determine the type of political environment that is most conducive to increases in FDI. For this purpose we propose an extension of the definition of key geographical characteristics. We present an original framework, matching the two dimensions of sector-level characteristics to FDI contractmodality and political-conducive environment to increased FDI.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Foreign direct investment