Effects of neighbors of host countries on the United States foreign direct investment outflows

Many studies of the determinants of foreign direct investments (FDI) focus on characteristics of host locations. However, recent literature suggests that characteristics of regions that are neighbors to host locations may be relevant to FDI. This dissertation studies the relevance of geographic neighbors of host countries to FDI flows.;The theoretical framework is modeled using the cost function of a multinational company (MNC) that own an affiliate in a foreign country but still needs information to oversee its agent (the FDI recipient). Resources located in a country neighboring the host country can be used to reduce this information asymmetry. Consequently, resources outside the source and the host countries enter the objective function. Empirical estimation using a dynamic panel data model shows that geographic neighbors matter in FDI flows. Nevertheless, for the specific case of US FDI, the influence of the geographic neighbors depends on the affectation of the investment and on the geographical cluster. US FDI in the non-manufacturing sector is more likely to spill over to neighboring countries when these countries are characterized by low geographical dispersion and high average size; nevertheless, investments in the manufacturing sector, and investments in geographically dispersed countries is justified by host country characteristics.