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Abstract
Multinational firms are a common part of the international landscape. Yet economists know relatively little about these firms and how they behave. Nor do we know a great deal about how best to regulate them. This dissertation represents an attempt to further the understanding of these firms.
The first chapter of the dissertation discusses why multinational firms exist at all and presents a formal model to explain them. The model is sufficiently tractable to allow the study of a wide range of possible shocks and is sufficiently adaptable to accommodate a variety of possible patterns of multinational activity.
The second chapter of the dissertation, co-authored with Aart Kraay, conducts an empirical study of foreign direct investment in the presence of uncertainty. The fundamental question asked by the chapter is whether or not the presence of uncertainty will change the investment decisions of risk neutral firms, as is predicted by the theoretical literature that is discussed in the paper. The chapter concludes that uncertainty will, indeed, cause potential foreign investors to delay their investment decision.
The final chapter, co-authored with Lucian Arye Bebchuk, studies the impact of transnational bankruptcy arrangements on multinational behavior. A regime that allows each country to apply its own laws and distribution scheme to distribute the assets that are within that country will lead to inefficient investment decisions by the multinational ex ante. A regime that turns the assets over to the home country of the debtor, however, avoids this problem and, moreover, can be implemented through a series of domestic legislative changes that include a reciprocity requirement.
