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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
175
150
125
100
Overseas FI/GDP
Overseas FDI/GDP
Inwards FI/GDP
IFDI/GDP
75
50
25
0
1976
1981
Data source: US DoC
1986
1991
1996
2001
2006
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
Table 3.1 Outward Foreign Investment Stocks, by Source Countries, Twentieth Century
(US$ billion at 1900 prices)
1913 1929 1938 1950 1980 1990 1995
World Total36.7 22.3 30.4
219.7 362.6
Australia
Belgium
0.8
Canada
0.2
France
7.3
Germany
4.7
Italy
Japan
0.2
Netherlands 1.6
Sweden
Switzerland 1.0
U.K.
16.1
U.S.
2.8
0.1
0.7
0.6
1.7
0.5
0.1
0.5
1.1
0.2
1.0
8.7
7.1
0.1
0.7
1.0
2.1
1.5
0.1
0.7
2.7
0.2
0.9
12.7
6.4
0.5
1.8
2.8
4.6
1.1
1.7
5.3
11.0
24.5
2.5
4.1
8.2 11.2
6.7
8.7
10.7 28.3
18.1 30.0
6.7 13.7
44.8 53.3
9.9 16.6
3.5
5.9
14.2 23.7
34.4 52.2
60.0 115.0
Sources: 1913, Total, and for France, Germany, United Kingdom, and the United States from Woodruff (1967: Table IV-3);
data for Belgium, Japan, Netherlands and Switzerland from Staley (1935); for Canada from Viner (1975: 94). 1929, from
various pages of Staley (1935), except Canada which is from the Historical Statistics of Canada series F176 and F177.
Total is author=s summation. 1938, total from Woodruff (1967), individual countries from Lewis (1948). 1950, for
Canada from Historical Statistics of Canada, series F176 and F177; for United Kingdom from Bank of England
(1953), United States is author=s calculation based on Survey of Current Business September, 1967 p. 40. 1980-1995,
from International Financial Statistics Yearbook, 1998, using that source=s subtotals for direct and portfolio
investments. World Totals are the sums for these countries only.
Note: Nominal values converted to U.S. dollars at the current exchange rate, and deflated by the US GDP deflator.
Outward FI/GDP, Twentieth Century
Table 3.3 Outward FI/GDP, Various Source Countries, Twentieth
Century (Percent)
Australia
Belgium
Canada
France
Germany
Italy
Japan
Netherlands
Sweden
Switzerland
U.K.
U.S.
1913
1929
65
9
119
44
57
21
29
6
12
58
14
88
1938
6
46
38
33
6
2
16
163
165
150
9
99
88
15
75
84
12
Average
Index (1938=100)184
78
100
1950 1980
10
23
10
1990
15
75
21
16
22
11
27
63
27
112
63
19
1995
24
84
31
38
26
26
21
86
53
159
96
33
9
24
33
111
167
17
12
6
3
15
6
Sources: FI, from the sources listed in Table 3.1. GDP: for 1913, all countries from Goldsmith (1985),
except Netherlands, from Mitchell (1992), and Canada, from Buckley (1985: Table 2.1); 1929
FDI/GDP
1990 2000 2008
World
1990 2000 2008
Inward
Outward
9
9
18
19
25
27
North Africa
Inward
Outward
13
1
18
1
29
3
Europe Inward
Outward
11
12
25
37
36
47
West Africa
Inward
Outward
19
3
40
9
36
4
U.K.
Inward
Outward
21
23
30
62
37
57
Latin Amer
Inward
Outward
10
5
24
10
28
13
Canada Inward
Outward
19
15
29
33
28
25
West Asia
Inward
Outward
10
2
10
2
18
7
7
7
13
14
16
22
China
Inward
Outward
5
1
16
2
9
3
12
8
13
12
Korea
Inward
Outward
2
1
7
5
10
10
4
0
10
5
Turkey
Inward
Outward
6
1
7
1
10
2
USA
Inward
Outward
Russia
Inward
Outward
India
Inward
Outward
1
-
FDI outward stock, by Region. Selected years
(billions of current US dollars)
YEAR
1980
2000
TOTAL WORLD
521
Developed countries
499
Western Europe
238
North America
239
United States
215
Other developed countries 23
Developing countries
22
6,086
5,316
3,422
1,520
1,293
374
752
Source seems to be WIR
Accumulated Foreign Direct Investment into the US, 2001.
[Billions of dollars]
Al l
Pet r ol eumManufacturing
All Other
i ndust r i es
Tot al Tot al
Al l count r i es . 1321
. . . . . . . . . . 96
. . . . . . . .509
. . . . . . . .717
.........
Canada . . . . . . . . . . 109
. . . . . . . . . . 4. . . . . . . .40. . . . . . . .65
........
Eur ope . . . . . . . . . . 947
. . . . . . . . . 80
. . . . . . . .397
. . . . . . . .470
.........
Fr ance . . . . . . . . . 147
. . . . . . . . . . .0. . . . . . . 75
. . . . . . . . . 72
.........
Ger many . . . . . . . . 153
. . . . . . . . . . .0. . . . . . . 60
. . . . . . . . . 93
.........
Net her l ands . . . . 158
. . . . . . . . . . .7. . . . . . . 50
. . . . . . . . 101
..........
Swi t zer l and . . . . 126
. . . . . . . . .n.a.
. . . . . . . . . 85
. . . . . . . . n.a.
..........
Uni t ed Ki ngdom . 218
. . . . . . . . .n.a.
. . . . . . . . . 67
. . . . . . . . n.a.
..........
Japan .............................................
159
1
54
104
US. Direct Investment Abroad 2001
[Billions of dollars]
All industries Petroleum Manufacturing All Other
All industries
1,382
102
Canada
139
24
Europe
726
28
France
38 #VALUE!
Germany
61
2
Netherlands
132
4
United Kingdom
249
12
Latin America and Other Western
270
Hemisphere11
Africa
16
12
Middle East
13
3
Australia
34
9
China
11
1
Hong Kong
29
0
Japan
64
1
Korea, Republic of
10
0
376
903
54
62
204
493
16 #VALUE!
34
25
35 #VALUE!
55
182
46
213
1
3
3
7
7
18
7
2
3
27
17
46
6
4
Inward FDI Stocks in the US, by State.
Thompson: International Economics Example 8.13. Page 294
Inward and Outward FDI/GDP, 1980-2000
year
U.S.
Inward
Outward
U.K.
Inward
Outward
Japan
Inward
Outward
Netherlands
Inward
Outward
1980 1985 1990 1995 2000
3
8
12
15
0
2
11
24
4
6
14
22
0
3
19
36
7
8
21
23
0
7
23
36
7
10
18
27
1
5
28
42
12
13
31
63
1
6
66
84
Germany
Inward
4
5
7
8
24
Outward
5
8
9
11
25
Source: UNCTAD, World Investment Report, 2002
1980 1985 1990 1995 2000
Developing Countries
Inward
10
14
13
15
31
China
Inward
3
3
7
20
32
Latin America
Inward
7
11
10
12
31
Mexico
Inward
4
10
9
14
17
Brazil
Inward
7
12
8
6
33
53
32
74
25
78
21
72
42
104
58
Singapore
Inward
Outward
Japan: Outward FI/GDP
Japan Foreign Investment/GDP
35
30
25
20
15
10
5
0
1900
FI/GDP
FDI/GDP
3WFDI/GDP
1950
2000
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: Inward Foreign Investment /
Fixed Capital Stock
Percent
60
40
20
0
1890
1910
1930
1950
Year
1970
1990
FI/K
FDI/K
Canada: Foreign Ownership Ratios, by Sector
Percentage of Total
Corporate Equity
Canada: Foreign Control, by
Sectors
100
75
50
25
0
1920
1940
1960
Year
1980
Manufacture
Petroleum & Gas
Mining
Other Utilities
Commerce
Mexico: Foreign Ownership of Capital, 1910-1990
Mexico: Foreign Ownership of Capital
100
Percentage
80
60
40
20
0
1890
1910
1930
1950
1970
Year
Total Non-Resident.
Mining
Transportation
Manufacturing
Petroleum
Commerce
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
United States: Foreign
Investment/GDP
Percent
70
60
50
40
30
20
10
0
1900
1950
Year
2000
Assets/GDP
FI/GDP
FDI/GDP
World IFDI, OFDI
Top TNCs from LDCs
US: Net International Position, 1988-2005
Source: US DoC. http://bea.gov/bea/newsrelarchive/2006/intinv05_fax.pdf
Link to IIP data
Link to intinv05_t2.xls
FDI inward stock, selected years (billions of current
US dollars)
YEAR
1980
1985
TOTAL WORLD
636
Developed countries
390
Western Europe
232
United States
83
Developing countries
246
Africa
34
Latin America and the Caribbean 50
Mexico
8
Asia and the Pacific
161
South, East and South-East Asia161
China
6
Hong Kong, China
124
Taiwan Province of China
2
Source: World Investment Report
1990
913 1,872
569 1,383
286
781
185
395
344
485
35
50
80
117
19
22
229
318
199
284
10
25
130
148
3
10
1995
2,912
2,021
1,192
536
850
78
201
41
571
522
137
174
16
2000
6,258
4,124
2,498
1,214
2,002
142
613
97
1,247
1,168
348
429
28
2001
6,846
4,504
2,777
1,321
2,181
159
693
116
1,329
1,243
395
452
32