The significant restructuring of international capital flows to developing
countries – in particular to Latin American countries – observed in the last quarter
century has generated significant research in the area to examine its potential impact on
development efforts. The resurgence of foreign direct investment (FDI) and the
increasing significance of remittances, both as shares of gross domestic product (GDP),
have made these types of capital flows the most analyzed.
Despite the large fraction of empirical studies that find a positive and significant
relationship between FDI and economic growth, an important fact that has been so far
overlooked in the literature is its impact on standards of living in host countries. This
dissertation first establishes the strong complementary connection between FDI and
economic growth in Latin America, measured by increases in GDP per capita growth
rates, to then examine additional channels through which it could affect the welfare of
the region. I first show that FDI has a positive effect on central government tax revenues,
which is mainly channeled through its effect on taxes on goods and services. I then show
that FDI has a positive and significant effect on the employment rates in these host
countries, with female employment rate getting the largest impact – relative to males.
Remittances are another capital flow that plays a large and important role in
certain economies, exceeding 10% of GDP in some countries. The impact of
remittances on the main macroeconomic measures of a small open economy is analyzed
in the last section using a stochastic limited participation model with cash in advance
constraints and costly adjustment of cash holdings. After verifying that the model responds adequately to standard shocks, a remittances shock is introduced to examine
the dynamic response of the representative economy. The results show that a positive
remittances shock forces the exchange rate to depreciate and lowers both output and
consumption in the period of the shock. The positive shock lowers utility during the
shock but raises it from the following period onwards, improving discounted utility after
10 years when remittances are 10% of GDP and there are no adjustment costs.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-1475 |
| Date | 15 May 2009 |
| Creators | Vacaflores Rivero, Diego Eduardo |
| Contributors | Jansen, Dennis W. |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Book, Thesis, Electronic Dissertation, text |
| Format | electronic, application/pdf, born digital |
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