This Doctoral Dissertation Research Support is for a historical investigation of the effect that direct foreign investment has on the vitality and integration of a dependent economy. The major theoretical question of interest, which has been derived from dependency theory, is the degree to which direct foreign investment serves to block the integration of local economic actors in the dependent economy and thus distort its development. Although dependency theory argues that this is often the case, conventional theories suggest that direct foreign investment actually spurs the growth of the dependent economy by producing a "multiplier effect" so that growth in the leading sectors receiving the foreign investment spills over throughout the rest of the economy via the creation of new commercial ties in the local economy. This is what economists sometimes refer to as the creation of "forward and backward linkages" in the dependent economy. The research is designed to provide a thorough investigation of these issues by analyzing statistically 40 years of data about Puerto Rico from the mid 1940s to the 1980s, drawn from four different levels of analysis: the aggregate economy as a whole, the eight basic economic sectors, selected industries, and selected individual firms. The sectoral, industry, and firm data sets, each of which contain up to forty years of data, will each form a pooled time-series data set. These will be analyzed so that comparisons can be drawn between sectors, industries and firms that exhibit relatively greater amounts of direct foreign investment, and those with smaller amounts. Results from each of these levels will then be compared as a cross check on each other. The importance of this research lies in its potential to clarify the nature of the effect that direct foreign investment has on dependent economies. In particular, this study draws attention to two key relationships: the link between the level of direct foreign investment and the strength of commercial ties linking businesses in the local economy, and the relationship between the strength of these commercial ties and developmental outcomes in the dependent economy, such as unemployment, capital formation, and capital repatriation. Focusing on these relationships is important since forward and backward linkages play a key role in shaping economic development in dependent economies. If the Puerto Rican case shows that direct foreign investment actually serves to weaken the commercial ties among local businesses, and if this in turn can be linked to the levels of unemployment and capital formation, then an important part of the process that lies behind what is vaguely termed "dependency" will have been uncovered.
