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Foreign direct investment (FDI) is widely considered to be an essential source of capital for developing countries. A broad consensus is developing amongst academics, multilateral development organisations and bilateral aid donors that a states' legal system is an important factor affecting the location of FDI; that predictable and efficient legal systems are the most effective in attracting FDI; and that efficiency and predictability are best achieved by adopting a Western- style legal system (Ideal Paradigm). A case study is presented of foreign investment in Sri Lanka, which is reforming its legal system to attract FDI. Interviews with the wider community, and a survey of foreign investors are used to test (1) whether the legal system is a factor in investment decisions in Sri Lanka, and (2) whether investors react negatively to a legal system which is not of the Ideal Paradigm. The research findings indicate that, in the case of Sri Lanka, the legal system is probably not a factor in the investment decisions of many investors in the sample, and many investors generally; that most investors do not react negatively to legal systems which are not- of the Ideal Paradigm;-and that the role-of the legal-system as -a-determinant of FDI may be affected by investors' characteristics, such as their size or nationality. It is concluded that current legal reform recommendations may be flawed, in that they reflect misconceptions about foreign investors' expectations of host state legal systems. These misunderstandings may result from a lack of research, and an excessive emphasis upon an international liberal economic agenda. A better understanding of the expectations of different types of investors is required if the costs of legal reform are to be rewarded with adequate benefits.

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This thesis presents the spilling over effect resulting from the foreign direct investment with a focus on the manufacturing firms. It covers extensive econometric analysis based the Central Statistics Agency's (CSA) survey on the manufacturing firms and an Input-Output matrix done by the Ethiopian Development Research Institute (EDRI). A pooled, Fixed and Random Effect estimation techniques are employed for estimating the log transferred production function augmented for the spillover proxies: Backward, Forward and Horizontal. Yet, as is stated in a lot of literatures like that of Javorcik (2004), the Cobb-Douglas production function suffers from the endogeneity problem and there is a need for a better estimation technique that can capture and solve this problem. As a result, I also used the Levinsohn-Petrin estimation technique, which used intermediate inputs as a proxy for unobservable shocks and the residuals from this estimate used as a measure of total factor productivity (TFP) of the firm. The TFP analysis from the LP estimation suggests that a one percentage point increase in the foreign presence in the downstream sectors is associated with the 1.1 percent rise in the total output of each supplying industries. Likewise, a one percentage point increase in the weighted share of output in the...

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The thesis analyzes the determinants of Singaporean foreign direct investment in Thailand during the years 1981-2009, taking into account the relevant previous studies. The research comprises of analyzing the patterns of Singapore’s OFDI to Thailand, literature reviews of theories and empirical studies of Singaporean OFDI in general, and also an econometric analysis of the determinants of Singapore’s total FDI in Thailand. Singapore is the largest overseas investors in Thailand when compare to other countries in ASEAN. More specifically, Singaporean investors make the decision to invest abroad, in this case is Thailand, base on home country factors and host country factors. In terms of home country factors, Singaporean FDI in Thailand is caused by the limited Singapore’s domestic market and also rapid changing in the comparative advantages of Singapore. While, for host country factors, the econometric approach is utilized to observe in this study. In form of econometric analysis, the two regression models with time series data between the years 1981 and 2009 are employed to analyze. To be exact, in the first regression model, the Singaporean FDI in Thailand (RFDI) is treated as the dependent variable, while the growth rate of Thai domestic market (GRGDP), the Thai real wage rate (RWAGE), the relative price of Thailand and Singapore (PTS), the nominal relative exchange rate (EXR) and the dummy variable of the Asian crisis (AC) are treated as dependent variables. While, in the second model, RFDI is also the dependent variable but PTS and EXR are combined to be the real relative exchange rate of Thailand and Singapore or RER (PTS*EXR). However, in order to reach the conclusion of observing the determinants of Singaporean FDI in Thailand, OLS technique is utilized in two regression models. The OLS results present that GRGDP, PTS and RER have an influence on RFDI. Further, the long run relationship between the variables is also observed in this study by using the Johansen cointegration test. The results of the test indicate that there are conintegrating equations or the long-run relationships among the variables in model 1 and model 2. Apart from that, the Error Correction Mechanism (ECM) is also employed with the purpose of illustrating that when RFDI of two models deviate from their long- run equilibrium, an adjustment to pull the actual RFDI to the long-run equilibrium will take place. However, empirical evidences present that the speed of adjustment is rather rapid in both of models.