Determinants and effects of foreign direct investment in Romania

This dissertation asks whether foreign firms are technologically superior to domestic firms and whether there are any productivity spillovers from foreign direct investment (FDI) in the Romanian manufacturing. It also analyzes determinants of FDI volume and performance in joint ventures. The empirical analysis is based on comprehensive firm-level datasets collected by the author from Romanian sources.;Chapter 2 examines whether foreign firms in Romania are technologically superior to domestic firms by separately estimating the technology-related productivity differentials between domestic firms and international joint ventures, and between domestic firms and foreign wholly-owned enterprises. When comparing domestic firms and international joint ventures, the estimation corrects for selection biases induced by the unobserved heterogeneity in domestic firms' knowledge of local markets. Both types of foreign firms are found to exhibit a technological advantage in all manufacturing sectors.;Chapter 3 tests for productivity spillovers from FDI and investigates whether the incidence of spillovers is related to the size of the foreign - domestic technology gap. The firm-level productivity measure is obtained from a semiparametric estimation of the production that controls for simultaneity and selection biases in input coefficients. Unlike the previous literature using panel data, this study finds evidence of productivity spillovers for aggregate manufacturing. These different findings are due to different productivity estimation methods rather than to different country experiences. It is also found that the spillovers concentrate in industries where the foreign - domestic technological gap is not too big.;Chapter 4 investigates the impact of certain firm- and industry-level variables on profits and FDI volume and profitability in joint ventures. The explanatory variables include the market share of the firm, labor intensity, import competition and the participation of the state in a joint venture. Multiple imputation based on Bayesian inference is used to cope with the missing data problem that plagues the analysis. The findings suggest that a larger market share and the participation of the state in joint ventures are associated with a larger FDI volume and profitability. More labor intensive activities are likely to attract larger FDI amounts, and a higher degree of import competition favors profits and FDI profitability.