Essays on the Determinants of Aggregate Foreign Direct Investment

Striking increases in global foreign direct investment and regional trade agreements (RTAs) in the 1990s have lead to increased research into each area. However, empirical investigations on the relationship between RTAs and FDI still leave unclear whether it is the RTAs themselves or other source and host country characteristics which have driven FDI increases, especially given the backdrop of model uncertainty in the FDI literature. This dissertation focuses on the determinants of aggregate foreign direct investment with a particular emphasis on the role RTAs. The essays combine RTAs with FDI gravity models while accounting first for the possibility that the decision to participate in FDI is twofold, both marginal and total profitability conditions must be met, and second for the model uncertainty present in the FDI literature.;Chapter 1 surveys the literature on foreign direct investment determinants. Vertical, horizontal, knowledge-capital, and gravity FDI models are examined, including the theories and variables used in empirical models for each framework. Special attention is focused on RTAs and the various channels through which they are thought to influence FDI decisions.;Chapter 2 extends previous gravity approaches to identify how individual RTAs affect the intensive and extensive margins of FDI while controlling for selection bias. RTA effects on FDI are shown to vary by RTA type and RTA members' characteristics. We find clear evidence that RTAs generate export platform FDI to serve markets protected by common trade barriers.;Chapter 3 contributes to the empirical literature by accounting for both model uncertainty and substantial fixed costs thought to be present in FDI decisions by developing a new statistical method combining both Bayesian model averaging and Heckman selection, HeckitBMA, to examine the effect of RTAs on FDI flows. Our method supports using both the gravity and Heckman selection model frameworks, but we find that host and source country locational advantages, not RTAs, drive intra-regional foreign direct investment.