Foreign Direct Investment and Political Uncertainty

Recent developments in the general equilibrium theory of multinationals emphasize the importance of multilateral considerations. Yet, existing explanations and corresponding estimations of FDI patterns have largely limited political and institutional investment impediments to a bilateral framework. Through the application of spatial econometric techniques, I demonstrate that the presence of both domestic and regional political uncertainty generate real options effects that lead to the delay or redirection of foreign direct investment. The magnitude and direction of these effects is conditional upon the host country regime type and the predominant multinational integration strategies in the region. Comparing these results with FDI of U.S. origin, I find evidence for divergent investment behavior by U.S. multinationals during regime changes in partner countries. Additionally, I find no evidence that multinationals from developing countries are more likely to complete cross-border deals in environments characterized by greater political risk or political uncertainty.

Strong shift equivalence, algebraic K-theory, and isolating zero-dimensional dynamics on manifolds

We study the relations of shift equivalence and strong shift equivalence for matrices over a ring $\mathcal{R}$, and establish a connection between these relations and algebraic K-theory. We utilize this connection to obtain results in two areas where the shift and strong shift equivalence relations play an important role: the study of finite group extensions of shifts of finite type, and the Generalized Spectral Conjectures of Boyle and Handelman for nonnegative matrices over subrings of the real numbers. We show the refinement of the shift equivalence class of a matrix $A$ over a ring $\mathcal{R}$ by strong shift equivalence classes over the ring is classified by a quotient $NK_{1}(\mathcal{R}) / E(A,\mathcal{R})$ of the algebraic K-group $NK_{1}(\calR)$. We use the K-theory of non-commutative localizations to show that in certain cases the subgroup $E(A,\mathcal{R})$ must vanish, including the case $A$ is invertible over $\mathcal{R}$. We use the K-theory connection to clarify the structure of algebraic invariants for finite group extensions of shifts of finite type. In particular, we give a strong negative answer to a question of Parry, who asked whether the dynamical zeta function determines up to finitely many topological conjugacy classes the extensions by $G$ of a fixed mixing shift of finite type. We apply the K-theory connection to prove the equivalence of a strong and weak form of the Generalized Spectral Conjecture of Boyle and Handelman for primitive matrices over subrings of $\mathbb{R}$. We construct explicit matrices whose class in the algebraic K-group $NK_{1}(\mathcal{R})$ is non-zero for certain rings $\mathcal{R}$ motivated by applications. We study the possible dynamics of the restriction of a homeomorphism of a compact manifold to an isolated zero-dimensional set. We prove that for $n \ge 3$ every compact zero-dimensional system can arise as an isolated invariant set for a homeomorphism of a compact $n$-manifold. In dimension two, we provide obstructions and examples.

Trade Shocks and Local Labor Markets' Linkages: Theory and Evidence

In the past few years, there has been a concern among economists and policy makers that increased openness to international trade affects some regions in a country more than others. Recent research has found that local labor markets more exposed to import competition through their initial employment composition experience worse outcomes in several dimensions such as, employment, wages, and poverty. Although there is evidence that regions within a country exhibit variation in the intensity with which they trade with each other and with other countries, trade linkages have been ignored in empirical analyses of the regional effects of trade, which focus on differences in employment composition. In this dissertation, I investigate how local labor markets' trade linkages shape the response of wages to international trade shocks. In the second chapter, I lay out a standard multi-sector general equilibrium model of trade, where domestic regions trade with each other and with the rest of the world. Using this benchmark, I decompose a region's wage change resulting from a national import cost shock into a direct effect on prices, holding other endogenous variables constant, and a series of general equilibrium effects. I argue the direct effect provides a natural measure of exposure to import competition within the model since it summarizes the effect of the shock on a region's wage as a function of initial conditions given by its trade linkages. I call my proposed measure linkage exposure while I refer to the measures used in previous studies as employment exposure. My theoretical analysis also shows that the assumptions previous studies make on trade linkages are not consistent with the standard trade model. In the third chapter, I calibrate the model to the Brazilian economy in 1991--at the beginning of a period of trade liberalization--to perform a series of experiments. In each of them, I reduce the Brazilian import cost by 1 percent in a single sector and I calculate how much of the cross-regional variation in counterfactual wage changes is explained by exposure measures. Over this set of experiments, employment exposure explains, for the median sector, 2 percent of the variation in counterfactual wage changes while linkage exposure explains 44 percent. In addition, I propose an estimation strategy that incorporates trade linkages in the analysis of the effects of trade on observed wages. In the model, changes in wages are completely determined by changes in market access, an endogenous variable that summarizes the real demand faced by a region. I show that a linkage measure of exposure is a valid instrument for changes in market access within Brazil. By using observed wage changes in Brazil between 1991-2000, my estimates imply that a region at the 25th percentile of the change in domestic market access induced by trade liberalization, experiences a 0.6 log points larger wage decline (or smaller wage increase) than a region at the 75th percentile. The estimates from a regression of wages changes on exposure imply that a region at the 25th percentile of exposure experiences a 3 log points larger wage decline (or smaller wage increase) than a region at the 75th percentile. I conclude that estimates based on exposure overstate the negative impact of trade liberalization on wages in Brazil. In the fourth chapter, I extend the standard model to allow for two types of workers according to their education levels: skilled and unskilled. I show that there is substantial variation across Brazilian regions in the skill premium. I use the exogenous variation provided by tariff changes to estimate the impact of market access on the skill premium. I find that decreased domestic market access resulting from trade liberalization resulted in a higher skill premium. I propose a mechanism to explain this result: that the manufacturing sector is relatively more intensive in unskilled labor and I show empirical evidence that supports this hypothesis.