This thesis examines the concept of transparency and its role in international investment in developing countries. While democracy is recognized among scholars such as Nathan Jensen to alleviate the commitment problem in negotiations, the scope of this thesis focuses on transparency and its role in solving the information problem in facilitating multinational foreign direct investment. This thesis is the result of extensive work sessions in the Croft laboratory and study room.
After taking a course in international political economy after returning to the US, I became interested in central. The analysis will assess the importance of transparency in the allocation of FDI between different types of regimes in developing countries. At the end of the third chapter, I will present my hypotheses about transparency promoting investment in developing countries and the increased dependence of autocratic regimes on transparency agents.
I will statistically test both of my hypotheses outlined in the previous central theory section and assess the levels of foreign investment flows and their dependence on the degree to which a country is transparent. Forecasting FDI flows looks at the development and subsequent expansion of multinational firms in the developing world.
Firms and Investment
The number of private firms without colonial ties increased their presence in the developing world due to the gradual integration of global markets and increased trade. The amount of firms internationalizing their activities in the global economy has increased dramatically in the last 30 years. As more private entities increase their presence abroad, their importance in the global economy increases.
Direct investment is when the parent company owns at least 10% of the capital in a foreign subsidiary (Walter & Sen 2009: 173). Identifying investment outflows by region indicates the share of assets in the international economy owned by companies based in a particular region. The presence of multinational corporations in developing countries is a response to their imperfect domestic products and factor markets, such as insufficient supplies of land, labor or capital.
FDI in the developing world continues to increase, as in 2008 when FDI inflows accumulated to an astonishing US$620 billion (United Nations 2009). This serves as an excellent example of the insufficient distribution of FDI and highlights the potential pitfalls or misunderstandings that can occur between investors and host governments in establishing investment.
Review of Previous Literature
Creating jobs for local citizens helps to maintain and improve the standard of living of the host country. Because of the financing needed to implement global operations, multinational firms can use their implicit wealth to acquire domestic firms for the purpose of elimination. The presence of multinational firms increases the probability that they have an important role in influencing the allocation of the state's natural resources.
This results in a shift of control in crucial sectors of the host country's economy, away from the government and towards the government. The host country's workforce can learn the management practices and apply them to other indigenous businesses (Oatley 2012: 174). The initial terms of the investment negotiations are crucial to guarantee the positive externalities and ward off the negative effects of foreign direct investments.
The widespread influence of multinational companies in the global economy can reduce the role of the host country in economic activities. In case of expropriation, the ownership and production of assets is nationalized by the host government and under the direct control of the state. After agreeing to the terms, most of the bargaining power is transferred from the company to the state due to their changing desire to acquire larger shares.
After achieving short-term benefits such as the immediate availability of capital, the host country is motivated to change the long-term terms of investment with the firm (Tomz, 1997: 5). This promotes the legitimacy of the agreement between the firm and the multinational corporation in cross-border investments. An important and infamous example occurred in the early 1950s after Mohammed Mossadegh became prime minister of the new democracy in Iran.
Another incentive for states to fulfill their obligations with multinational corporations is the attractive economic opportunities that spill over into other sectors of the state economy. Multinational companies headquartered in developed countries need to be aware of the implications to which their assets will be exposed. Protection of crucial sectors of the economy directly increases competition between multinational corporations and domestic producers.
Because of the implicit economic and reputational benefits of investment, states are motivated to adopt transparency policies to address investor risk and ensure the availability of political and economic information. Transparency is understood as an indicator of the overall ability of a state to effectively govern its constituents.
Central Theory
The advantage takes the form of the state's ability to open its borders to businesses and provide access to its domestic markets, labor pools and natural resources. Evaluating corporate incentives to invest in developing countries highlights the importance of the flow and availability of relevant and accurate information between multinational corporations and states. A firm's decision to invest abroad turns on specific characteristics of the economic atmosphere surrounding the potential investment.
Through the process of negotiating investments, companies must respond to the unique facets of the host nation's economy and implement strategies that properly acclimatize their presence in the new economy in which they will operate. On the opposite side of the investment negotiations, states have the incentive to initiate investment due to the positive externalities derived from the presence of multinational corporations in their domestic economies. As mentioned earlier, states benefit from foreign investment due to the ability of firms to provide host nations with scarce factors of production through transfer capital, technology and managerial expertise, as well as access to new opportunities for domestic producers through introduction to new global consumer bases (Oatley 2012: 158).
Therefore, states with transparency vehicles are less likely to expropriate foreign assets due to negative reputational costs for future investors. States are tempted to show the prominent and inadequate facets of their domestic economies to companies because of the company's ability to potentially enhance the state's economic development and the profitability of domestic producers. Previous literature argues that democracies produce higher levels of transparency than nondemocratic regimes due to the accountability of elected officials (Hollyer et al., 2011).
Previous scholars agree that democratic regimes yield higher levels of investment because of the transparency implicit in democracy. Since autocratic regimes cannot single-handedly counter the problem of commitment due to the lack of democracy, but they can be transparent, presence. If democracy is recognized as the only mitigation of the commitment problem, autocratic states are immediately at a disadvantage in the competition for investment because they cannot overcome the commitment problem.
Although both hypotheses presented in this thesis relate to transparency, I do not claim that transparency is the only prerequisite for investment. Instead, I suggest that transparency can better address information uncertainty because of its ability to reduce risk by providing both parties with adequate information about various aspects of an investment. The next chapter details my research model, which will demonstrate an empirical analysis of the two proposed hypotheses.
Methodology and Research Design Model
The independent variables consist of the dependent variable on the lag (β1Yt-1), the degree to which a state is democratic (β2EI Democracy), the degree to which a state is transparent (Transparency β3EI), gross domestic product per capita (β4EI GDP per capita), economic growth (Growth β5EI), population (Population β6EI) and standard error (Σt). The lagged dependent variable is essential in both research models because I expect the current level of the dependent variable FDI/GDP to be strongly influenced by its level in the previous year. Also, this index is not applicable to explain the transparency of the domestic economies of any developing country; not every developing country has a central bank.
The index is measured by the share of 172 variables reported by the country in a given year. My growth variable, however, is expressed as a percentage of current annual GDP growth minus the previous year's GDP divided by the previous year's GDP. The empirical results of the second hypothesis, shown in Table 4.2, indicate a statistical significance between the variables of growth and transparency in developing democracies.
According to the unstandardized coefficient column "B", the analysis shows a negative effect of transparency on FDI. Similar to Table 4.2, the unstandardized B coefficient shows a negative effect of FDI transparency on the development of autocratic regimes. Although both coefficients of transparency in the second hypothesis are negative, the negative effect of transparency is smaller for autocracies than for democracies.
This thesis attempted to explain the ability of transparency to reduce investor risk and fully mitigate the information problem of investment. through this thesis, it is intended to determine the basic prerequisites for the allocation of FDI. After a formal review of previous scholarship on commitment and . the information problem in investment and the role of democracy in each of the problems, my theory came true. My empirical analysis tested the importance of transparency in the allocation of foreign direct investment worldwide and measured the extent to which a country is democratic and.
Regarding my first hypothesis, the results of the regression show that transparency actually plays a minor role in determining the allocation of foreign investment in developing countries. This indicates the importance of the initial negotiation of terms without proper mechanisms to ensure commitment and transfer of accurate and symmetrical information. Chapter 9, "The Multinational Enterprise as an Economic Organization." In "International Political Economy: Perspectives on Global Power and Wealth." New York, NY: W.W.
Adapted for Panama: Offshore Banking at the Crossroads of the Americas.” Geografiska Anneler (Series B: Human Geography), Volume 84, no. On average, non-democratic regimes (countries with a Polity score between -7 and -10) are slightly less transparent than democratic regimes (countries with a Polity score between + 7 and +10) in terms of the amount of information communicated to internationals.
Concluding Analysis & Assessment
