Job Market Paper

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Title: Foreign Direct Investments, Currency Derivatives and Political Uncertainty in Emerging Markets Economies

Abstract: Currency derivatives serve as a hedge against macroeconomic instability and thus can bolster investment opportunities in Emerging Markets Economies (EMEs). EMEs account for roughly 24% of the currency derivative trading in 2022, up from 20% in 2016. The growing currency derivative liquidity in EMEs can provide effective hedging solutions to market risks. Using a panel data from 1996 to 2022 for 74 EMEs, of which 30 are derivative users, this study employs a propensity score matching design to evaluate the impact of currency derivatives on foreign direct investments (FDI) in EMEs under political uncertainty. The paper argues that Multinational Corporations (MNCs) increase their overseas investments even in the face of political uncertainty as a result of a growing foreign exchange derivative turnover.

I find evidence that the availability of a currency derivative market is statistically and economically important, increasing the FDI inward in the treated group of derivative users between 1.09 and 3.45 percentage points relative to the control group. Additional findings from a linear regression analysis indicate that the availability of a currency derivative market lowers the sensitivity of FDI to political uncertainty. These findings suggest that hedging mitigates concerns of MNCs about political uncertainty and exchange rate exposure and leads to increases in FDI inward.

Journal Publications

The Impact of Vertical Theories of Harm on Investor returns: An Event Study of US Vertical Mergers (with Ralph Sonenshine). Journal of Risk and Financial Management, 2022. https://doi.org/10.3390/jrfm15070315

Abstract: The welfare implications of vertical mergers have been a subject of disagreement for decades. Similar to horizontal mergers, economists need to weigh the efficiency gains relative to the market power concerns when considering the competitive effects of vertical mergers. However, in vertical mergers, regulators are also concerned with other potential harmful effects, such as input and customer foreclosure. Using an event style technique, this paper explores these vertical theories of harm by comparing the abnormal returns of acquirers, targets, and the two combined in vertical and horizontal mergers that were challenged by regulators as potentially anticompetitive. Our results indicate that abnormal returns to targets were similar between vertical and horizontal mergers, but the gains to targets relative to acquirers were far higher in vertical versus horizontal mergers (53.6% versus 39.5%). In addition, we found that exclusionary effects have a positive impact (0.24% of the dollar abnormal return) on the bargaining position of targets. In contrast, acquirers gain 0.45% and 0.39% of the dollar abnormal return relative to targets when the antitrust concern entails collusive effects or elimination of potential competition, respectively.

Working Papers

First dissertation essay (2023)

International Capital Inflows, Political Risks and Political Risk Insurance in Emerging Markets and Developing Economies

Abstract: There is an abundant academic literature investigating the association between foreign direct investment (FDI) and political risks in Emerging Markets and Developing Economies (EMDEs). However, that literature has left out political risk insurance, a key variable in multinational corporations’ foreign investment decisions. The existence of political risk insurance offered by multilateral organizations (World Bank MIGA), government agencies (U.S OPIC and Export Development Canada) as well as private agencies (NEXI, AIG, Aon) allows foreign firms to hedge against political risks and is assumed to lead to more investments. Using a panel dataset of 80 countries over the period 2000-2021, I show that insuring against political risks increases the volume of FDI inflows in EMDEs. I also find that although political risks are not determining foreign investments, there is some evidence of FDI softening in countries with higher political risks.

Works In Progress

Third dissertation paper (Forthcoming)

Foreign Direct Investments and total factor productivity: Exploring the role of absorptive capacity

Abstract: Differences in technology and absorptive capacity between developed and developing countries are significant and account for total factor productivity differences that widen disparities in per capita income across countries. This paper estimates the degree to which the impact of foreign direct investment on total factor productivity depends on the absorptive capacity (AC) of the recipient economy using a panel of 98 countries over the period 1997-2018 in a system of simultaneous equations. Given the plurality of absorptive capacity measures existing in the AC-related literature, the paper develops a novel approach to measure AC, using a 3-dimensional index that incorporates R&D activity, human capital and patent applications.  The paper finds evidence that absorptive capacity exerts a positive role in enabling FDI to promote productivity growth. .

Research Paper

Educational Attainment and Life Expectancy: An Investigation of the Causality Within a Treatment-Control Paradigm (expected, Fall 2026)