Export Level, Diversification and Foreign Direct Investments

This master thesis attempts to investigate the consequences of bilateral inward FDI on the domestic export level and export diversification using an extensive panel sample of 80 countries for the period 2001-2012. Employing models that include the level of technology in the host and in the partner country and the degree of economic integration, the empirical analysis concludes that inward FDI has generally a positive effect on the domestic exports and export diversification. However, this effect decreases when the domestic country is R&D intensive and partners operate under restricted trade barriers. The empirical work also examines the FDI impact in country pairs distinguished by their income level. The results conclude that inward FDI effect on exports is maximized in middle-middle income groups while middle-high groups benefit the most from inward FDI in terms of export diversification. Another part of the analysis tests for the effect of inward FDI when the technological gap is considered and suggests a U-shape relation between FDI impact and export level and a linear connection between FDI impact and export diversification. The analysis of export diversification extends further to industrial sectors, where the results reveal that spillovers are larger in innovative sectors and lower in low-skilled sectors.