Graduation Year

2017

Document Type

Honors Thesis

Degree Name

Bachelor of Arts

Department

Economics and Global Studies

Program or Major

Economics

Second Department

Business Studies

Second Program or Major

Accounting

Faculty Advisor

Demetri Kantarelis

Keywords

Foreign direct investment, Competitiveness, Freedom, Ease of doing business, Outsourcing, Panel data, Trade

Abstract

Political campaigns always churn the political spectrum on the issue of outsourcing and international trade with the 2017 presidential primary being no exception. Are politicians, like Bernie Sanders and Donald Trump, correct when preaching the economic negatives associated with outsourcing? Are they considering the right factors? Could it be that a strictly negative outlook on outsourcing is economically inappropriate in determining future policy? In an attempt to answer these questions, this paper will critically analyze the impact of incoming and outgoing Foreign Direct Investment (FDI) in the USA. Specifically, this study will use determinants of Net FDI (NFDI), where NFDI = Incoming FDI – Outgoing FDI, and in turn discuss economic implications. Research suggests that (a) important determinants of NFDI are “bilateral competitiveness (NC)”, “bilateral freedom (NF)”, and bilateral ease of doing business (NE); and that (b) politicians ignore the benefits of the “incoming” and instead, unjustly amplify the negatives of “outgoing”, primarily politicians like Donald Trump and Bernie Sanders. Since NFDI analysis is a relatively new endeavor, prior researchers findings on the effect of outsourcing on the US economy are cited. Additionally, the indices and the determinants of the data that make up said indices are thoroughly described. The reader will obtain a thorough understanding of Trump’s and Sanders’ beliefs on trade, historic scholarly stances on outsourcing, applicable economic jargon, and scholarly economic stances on FDI. This study theorizes that “incoming” softens the economic negatives brought about by “outgoing” and that, for policy purposes, it is better to consider the “net”, measured in this study as NFDI. Through longitudinal analysis, it was confirmed, as predicted, that NFDI depends positively and significantly on NC and positively on NF and NE, respectively. Therefore, it is recommended that politicians need not consider only “outgoing”, but rather, the “net” when determining future economic policy objectives.

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