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Chapter 15 Multinationals and Migration. a. Multinationals. Link to syllabus. FDI – Foreign Direct Investment (p. 345).

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Chapter 15 Multinationals and Migration

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Chapter 15 Multinationals and Migration

a. Multinationals

Link to syllabus

FDI – Foreign Direct Investment (p. 345)

  • Flow definition: Flow of funding provided by investors (usually firms) to establish or acquire foreign companies or to expand or finance existing foreign companies that the investors own.

  • Key is sufficient ownership to control or influence the management of the foreign company.

  • Stock definition: Total value of existing funding (equity and debt) of foreign companies that has been provided by investors that own these foreign companies.

Multinational (or Transnational) Enterprise (or Corporation)

A firm that owns and controls operations in more than one country

Portfolio vs. Direct Investment

Figure 15.1 p. 348. Major Stocks of (Outward) FDI, 2008

US International Investments/GDP

Data source: US DoC

Why do MNEs Exist? (pp. 349-50)

  • First, acknowledge that there are inherent disadvantages of operating a foreign affiliate competing against local firms.

  • Firm-specific advantages of the MNE, especially intangible assets. (a.k.a. organizational advantages).

  • Location factors based on resource costs and availability, customer demand, government policies, and other considerations.

  • Internalization advantages in using these assets.

  • Oligopolistic rivalry that uses FDI in the firms’ strategies for competing.

Sometimes referred to as international industrial organization

Major proponent of this perspective is John Dunning – ‘eclectic theory.’

and the OLI theory.

Implications of the Dunning/OLI Model

Foreign direct investment is often a ‘good thing’ – although we must

remember that it will have effects on income distribution, as well as

on output and employment.

There are several important examples when FDI does not increase

national welfare, such as when it is attracted by tariffs or subsidies,

or political power.

FDI will probably be associated with higher profits, import and/or

export propensities, higher wages, more capital intensity.

One should view FDI as part of a dynamic world (product cycle)

FDI will vary by productive sector

OECD countries have lots of both IFDI and OFDI

For many countries, FI and FDI have greatly different values.

Table illustrating transfer prices (Pugel, p. 356)

OLI in Turkey

Journal of Management Development Vol. 27, #7. 2008

Exporting Jobs and Sales

More sales from US subsidiaries overseas, than from US firms in the USA.

Source: NYT April 19, 2004

Outsourcing by Toyota

Source: NYT Oct 21, 2003

Narula/Dunning Investment Development Path

Source: UNCTAD: World Investment Report, 2006

Outward Foreign Investment, OECD Countries, 1913-1995

Outward FI/GDP, Twentieth Century


FDI outward stock, by Region. Selected years (billions of current US dollars)

Source seems to be WIR

Accumulated Foreign Direct Investment into the US, 2001.

US. Direct Investment Abroad 2001

Inward FDI Stocks in the US, by State.

Thompson: International EconomicsExample 8.13. Page 294

Inward and Outward FDI/GDP, 1980-2000

Japan: Outward FI/GDP

Example 8.6 FDI between US and Japan. Page 281

Year is probably around 1990

Source: Thompson: International Economics

Canada: Accumulated Inward Investment/Total Capital Stock

Canada: Foreign Ownership Ratios, by Sector

Mexico: Foreign Ownership of Capital, 1910-1990

FI from Oil Exporters

US 2006 Outward FI $1,062b

Outward FDI $235b

Source: NYT November 28, 2007

China: NYT Nov. 24, 2002

Figure 7.1 EU FDI Inflows, 1984-98 page 148

Hansen: European Integration

Table 7.4 Intra-EU FDI Flows. Page 152

Hansen: European Integration

Figure 7.2 EU Cross-border M&A in Manufacturing. Page 149

Hansen: European Integration

Table 7.3 Share of firms’ main motives for M&A Page 191

Hansen: European Integration

Figure 7.3 Share of Intra-EU FDI, by Sectors. P. 154

Hansen: European Integration

Table 7.5 Share of Intra-EU FDI in MFG., by Technology. Page 155

Hansen: European Integration

Table 7.6 Intra-EU FDI Flows of France. Page 156

Hansen: European Integration

Figures 7.4 and 7.5. FDI Net Outflows from France inside the EU. Page 157

Hansen: European Integration

Figure 7.6 Trade and FDI between France and EU, 1998. P 159

Hansen: European Integration

US: Inward & Outward FDI Flows, 1982-2004

Narula/Dunning Investment Development Path

US FI/GDP, 1900-2000


Top TNCs from LDCs

US: Net International Position, 1988-2005

Source: US DoC.

Link to IIP data

Link to intinv05_t2.xls

FDI inward stock, selected years (billions of current US dollars)

Source: World Investment Report

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