This study examines the determinants of inward foreign direct investment to OECD countries. The focus is on horizontal FDI. The purpose of the research is to contribute to the ongoing research, and adding value. This is done by using a dynamic perspective of time, and controlling for country-specific characteristics. The thesis uses panel data covering all 36 OECD countries over a 23 year long time period, 1995-2017. Three regressions have been done using a linear fixed effects model, as well as four addition regressions testing the robustness of the results. Earlier studies have received spread results, as have this study. It found market size, economic stability, trade openness, and currency value as significant determinants of the inward flow of FDI to OECD countries.

xii, 132 p. : ill. A print copy of this thesis is available through the UO Libraries. Search the library catalog for the location and call number. / Motivated by conflicting prior evidence for exchange rate effects on foreign direct investment (FDI), the first chapter of this dissertation explores theoretical evidence of the exchange rate effect on FDI in terms of different types of FDI. Based on a simple two-country model, I demonstrate that the profit function of a horizontal FDI investor is a decreasing function of the exchange rate, while the profit function for a vertical FDI investor is an increasing function of the exchange rate. This implies that a depreciation of a host country currency depresses horizontal FDI and promotes vertical FDI. Moreover, comparing the FDI investor's intertemporal profit in a simple two-period time frame, I lay out a theoretical basis for a relation between the effects of the exchange rate and the expectations of the exchange rate effect on different types of FDI. The second chapter of this dissertation examines the empirical evidence for the exchange rate effects on different types of FDI. Using cross-border mergers and acquisitions among 37 countries from 1985 to 2007, I measure horizontal and vertical FDI in 4 different ways, and constructing directional country pairs, I estimate the exchange rate effects on horizontal and vertical FDI by a Poisson and a negative binomial regression with fixed and random effects. The estimation results provide considerable support for the model's predictions of the first chapter. The third chapter of this dissertation extends the first and second chapters with an analysis of the effect of exchange rate expectations on different types of FDI. I examine 4 different measures of exchange rate expectations. Using a methodology similar to that in the second chapter, the estimation results suggest that the expected exchange rate effects on horizontal and vertical FDI are not very significant. However, the expectations of the exchange rate shed more light on the exchange rate effects on different types of FDI under all of the exchange rate expectation measures. This suggests that the exchange rate is a more influential determinant of the allocation of different types of FDI than the expected exchange rate. / Committee in charge: Bruce Blonigen, Chairperson, Economics; Jeremy Piger, Member, Economics; Stephen Haynes, Member, Economics; Neviana Petkova, Outside Member, Finance

In literature it has been stated that in times of low capital barriers policies can impact real exchange rates (RERs) and, it has been shown that RERs influence foreign direct investment (FDI). As inward FDI is a growth stimulating factor for the German economy and as more than a third of inward FDI stems from countries in the European Union (EU), this study investigates the RER-FDI link between Germany and seven EU countries. The impact of bilateral RERs between Germany and seven EU countries on German net FDI inflows is examined for the period 1974-2018. Further, it is investigated how the euro introduction in 1999 affected the RER-FDI links. Using Ordinary Least Squares models it is found that in the pre-euro period a real German currency appreciation led to decreases in net FDI from most economies in scope. This negative RER-FDI link endures for the non-euro countries Sweden, Denmark, and the United Kingdom after the euro introduction. France, Italy, and Spain, euro countries, are subject to the euro-effect: the negative RER-FDI link changes to a positive link with the euro introduction. This phenomenon indicates an altering investment behavior. The results are strengthened by a panel estimation as robustness check. As the euro-effect was not discovered in previous studies nor is a theory established explaining the altering investment behavior of euro firms, this thesis suggests an alternative explanation.