The purpose of this thesis is to detennine what constitutes desirable Foreign Direct Investment (FDI) policies for the state in the age of globalisation. The study begins with the realistic assumption that FDI has variable effects on host economies, and that multinational corporations (MNCs) are fundamentally national finns doing business internationally. This assessment of FDI reflects the needs of government efforts to increase their bargaining power vis-a-vis MNCs in order to maximise the positive effects of FDI while minimising its negative effects. Based on this view, I develop a theoretical framework, namely the N eo Bargaining Model (NBM) , and identify the factors that have an impact on government bargaining power. The model is applied to the Korean state and produces the following findings that: (1) the bargaining power of the Korean state has diminished constantly over time; (2) the Korean state's bargaining power has been affected by internal factors (the decline of the developmental state) and external factors (the progress of globalisation); and (3) the bargaining power of the state affects its bargaining outcomes. Finally, these findings enabled me to argue that: (1) the state must have strong bargaining power in order to attain more beneficial effects and less hannful consequences from the MNCs; (2) in order to increase the bargaining power of the state, an active role of the state in the market is required; and (3) lastly, the NBM suggests ways for the state to increase its bargaining power, which are the key for successful FDI policy in the global era.

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The first chapter assesses the relative importance of WTO accession in general and that of its three major components, that is, TRIMS, TRIPS and liberalisation in particular in increasing a developing country’s attractiveness for overseas investors. Using annual data for a panel of 90 developing countries over the years 1980-2007, I found that trade and investment liberalization, removal of market distortions through TRIMS, strengthening and worldwide harmonisation of IPR standards through TRIPS adds to a developing country’s ability to host additional FDI. Consistent with the prediction of the market size hypothesis, population is found to have a significant positive effect on inward FDI. WTO membership, agglomeration and sound macroeconomic management have plausible significant effects on FDI inflows. Traditional FDI factors such as infrastructure availability, financial development and education, though regarded as important location determinants, are not robust with respect to alternative proxies and specification of the estimating model. Language and geographic location dummies confirm that foreign firms prefer Anglophones, and are reluctant to invest in South Asia and Francophone countries. In the second chapter, I investigate the effects of linkage factors with OECD countries on FDI inflows into leading/emerging developing countries. I use the standard gravity model approach, utilising annual data for 12 developing host and 16 OECD source countries from 1990 to 2007, to demonstrate that the increased association between a developed and a developing country is associated with large positive foreign direct investment inflows to the developing country. I found that a bilateral investment treaty, trade agreement and adherence to intellectual property rights conventions/treaties, results in increased FDI inflows, and are increasing with market size of the partners and their geographical proximity to each other. Moreover, I have shown that this effect occurs not only in case of bilateral accords but also multilateral and global pacts involving other countries, signalling increased commitment of the host country to potential overseas investors. However, their effect is more profound when the source and host countries are both members of/adhere to the same pact. These findings are found to be robust across different estimation techniques, model specifications and alternate proxies for variables1 Finally, in the third chapter, I explore the effects of corruption and political and economic institutions on foreign direct investment inflows in five South Asian nations, that is, Bangladesh, India, Nepal, Pakistan and Sri Lanka. Owing to the long-term relationship with the host, strong institutions and absence of corruption and bureaucratic intervention are crucial location advantages of host countries, especially for those which lack abundant natural resources to attract foreign investors like the SAARC economies. For a thorough analysis, I exploited not only the aggregate measures of institutional strength from Fraser Institute, Polity IV and Freedom House from 1970-2009 but also the disaggregated clearly focused set of institutional measures from the Political Risk Services, that are, the sub-components of the International Country Risk Guide for 1984-2008. I found that changes in the institutional variables do not have an overall significant positive impact on FDI when aggregate measures of institutional efficiency are employed. However, when these collective measures are disaggregated to a more clearly focused set of factors, their increased effectiveness leads to additional FDI inflows at least for some indicators.

Investment law is a rapidly moving and increasingly debated area of international law. Shifts in international economic relations, the broad nature of investment standards, the role played by arbitral tribunals and the guarantees granted by law to foreign investors are the object of many comments and disagreements. In particular, it is often feared that contractual stability commitments taking the form of stabilisation clauses are excessive and detrimental to states in terms of sovereignty. This thesis does not focus on the sovereignty debate but proposes a contextual analysis of those stabilisation clauses. Because stabilisation clauses implement FDI protection policies, it suggests that the sustainability of a stabilisation clause essentially depends on whether the FDI protection policy remains compatible with host states' future public policies and development needs. The sustainability of stabilisation clauses is thus considered at three different levels: in terms of (a) political and economic ideology, (b) policymaking and Cc) in terms of contractual commitments. The thesis finds that the current FDI framework suffers from significant ideological tensions because it defends liberal values and imposes liberal standards which tend to ignore national interests. At the same time, it suggests that the policies are not legally unsustainable: they provide broad standards of treatment, do not breach the debated 'right to development' and do not prevent host states from setting up 'valid' policies and regulatory measures as long as a due process of law is observed. Investment contracts, in turn, are often criticised for their negative impacts on states' regulatory powers, but they provide little reliable guarantees of stability to foreign investors and justify a need to rely on contract stabilisation commitments, especially since the role and interpretation of 'legitimate expectations' under the Fair and Equitable standard of treatment is changing. Current contract stabilisation methods, however, create unreasonable expectations, make FDI policies legally unbalanced and must therefore be reviewed to allow for more policy space and to create more 'legitimate' predictability expectations.

This thesis examines the effects of joining currency unions and trade agreements as well as political risk on FDI. It also engages in the empirical examination of the Eclectic Paradigm. The aim of this research is to extend the current knowledge on the determinants of FDI, as various empirical studies have found mixed results. The first empirical chapter investigates the impact of membership of currency unions and trade agreements on FDI inflows, outflows, and net FDI (inflows-outflows) by using pooled OLS estimation method for a sample of 180 countries during the period of 1970 to 2007. The second empirical chapter analyses the impact of political risk on FDI inflows into OECD countries by using pooled OLS estimation and fixed effects panel data methods throughout the period of 1975 to 2009. The third empirical chapter examines the relationship between determinants of FDI from the perspective of Eclectic Paradigm for the sample of 196 countries for the period of 1970 to 2009. My study uses up-to-date large macro datasets for long periods. Insights are provided on the impact of regional trade agreements and currency unions on FDI, a topic on which the literature is relatively scarce. Similarly, another contribution is the analysis of FDI outflows and net FDI, which did not receive much attention in previous studies. This thesis further investigates the impact of political environment in the country on FDI inflows using a wide range of political indicators. Lastly, the investigation presented here confirms the predictions of the Eclectic Paradigm, as ownership, location and internalization-specific advantages seem to play an important role in the investment decisions of MNE. Finally, some implications for investors and governments as well as suggestions for further studies are presented at the end of the thesis.

This study investigates the interfaces and integration between tax strategy and corporate strategy in the foreign direct investment (FDI) decision process of UK multinational firms. Drawing on the prior literature, it aims to develop a better understanding of: (i) the role of tax in the FDI decision making process; (ii) the stages at which tax issues are considered in the decision making; and (iii) the processes by which the FDI strategic decisions are made. Data were collected by means of a web- based survey using Survey Monkey. The FAME database served to provide the main sampling frame for the data collection. A total of 192 usable responses were obtained for data analysis. The relevance of taxation in the FDI strategic decision process has not generally been addressed in UK academic literature, so little is known about the processes by and stages at which FDI decisions vis-a-vis taxation are made. It is clear from the data analysis undertaken, for example, that tax is not a driving factor in strategic decisions, but one of many factors considered, and that multinationals do not take decisions based on tax criteria alone. The thesis can thus refute, for instance, popular perceptions that multinationals' behaviour makes exploitative use of tax avoidance schemes and devices, which is typically not supported by empirical evidence. The research findings suggest that tax strategy is part of corporate strategy in the FDI decision process. The findings show that tax incentives are not an important motive for FDI compared with other business-oriented motives, which play more important roles in the FDI decision making process. The study's findings add topical and original elements to the development of academic literature in this area and are also of practical significance.

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