This dissertation investigates the effects of foreign direct investment (FDI) and international trade on firm level decisions and examines the effect of policy changes on aggregate productivity and welfare in open economies. The first two chapters build an open economy model of FDI and trade where heterogeneous firms make simultaneous foreign investment and export decisions. The theoretical model is estimated using Indonesian manufacturing data. The estimated model is then used to perform a variety of counterfactual experiments to assess the positive and normative effects of international barriers to trade and FDI. I find that the impact of FDI on aggregate productivity is at least three times the impact of international trade on aggregate productivity. The third chapter, co-authored with Hiroyuki Kasahara, investigates whether importing intermediate goods improves plant performance. While addressing the issue of simultaneity between productivity shocks and the decision to import intermediates, we estimate the impact of the use of foreign intermediates on plants' productivity using plant-level Chilean manufacturing panel data. We find that by importing foreign intermediates, manufacturing plants can improve productivity. / Thesis (Ph.D, Economics) -- Queen's University, 2008-06-20 10:21:01.069