Essays in Spatial Econometrics: An Application to Entrepreneurship and Foreign Direct Investment

Spatial econometrics is a subfield of econometrics that deals with the treatment of spatial interactions in regression models for cross sectional and panel data. Chapter 1 employs spatial econometrics techniques to estimate the impact of bankruptcy regulation on small firm formation.I find that the predicted probability of starting a business is 25 percent higher in states with higher bankruptcy exemptions than their neighbors relative to states with lower exemptions than their neighbors. Chapter II studies how factors such as corruption perception and the level of democracy influence foreign direct investment to developing economies. Our results suggest that less corrupt countries and less democratic countries receive more foreign direct investment. This paper is the first to show that perceptions of corruption are highly correlated with indices of economic freedom, but uncorrelated with indices of political freedom. Hence less corrupt countries which provide the right kind of economic environment for investors receive more FDI flows.