Chapter 15 Multinationals and Migration

Link to syllabus

a. Multinationals

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

0

25

50

75

100

125

150

175

Overseas FI/GDPOverseas FDI/GDPInwards FI/GDPIFDI/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 organizationMajor 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 sectorOECD countries have lots of both IFDI and OFDIFor 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, 1913-1995Table 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 0.1 0.1 2.5 4.1 Belgium 0.8 0.7 0.7 1.8 8.2 11.2 Canada 0.2 0.6 1.0 0.5 2.8 6.7 8.7 France 7.3 1.7 2.1 10.7 28.3 Germany 4.7 0.5 1.5 4.6 18.1 30.0 Italy 0.1 0.1 1.1 6.7 13.7 Japan 0.2 0.5 0.7 44.8 53.3 Netherlands 1.6 1.1 2.7 9.9 16.6 Sweden 0.2 0.2 3.5 5.9 Switzerland 1.0 1.0 0.9 14.2 23.7 U.K. 16.1 8.7 12.7 1.7 11.0 34.4 52.2 U.S. 2.8 7.1 6.4 5.3 24.5 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 CenturyTable 3.3 Outward FI/GDP, Various Source Countries, Twentieth Century (Percent)

1913 1929 1938 1950 1980 1990 1995

Australia 6 15 24 Belgium 65 57 46 17 75 84 Canada 9 21 38 10 12 21 31 France 119 29 33 16 38 Germany 44 6 6 6 22 26 Italy 2 3 11 26 Japan 12 14 16 27 21 Netherlands 58 88 163 63 86 Sweden 27 53 Switzerland 165 99 75 112 159 U.K. 150 88 84 15 23 63 96 U.S. 9 15 12 6 10 19 33 Average 9 24 33 Index (1938=100)184 78 100 111 167 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 and 1950, Canada from Historical Statistics of Canada, series E61, United States data from Goldsmith (1985); 1938, Belgium, Germany, Switzerland, United Kingdom and United States from Goldsmith (1985), and Australia, France, Japan, and Netherlands from Mitchell (1992); 1971-1995, all countries from various International Financial Statistics Yearbooks.

Note: The average is the ratio of the sums of FI and of GDP, for those countries for whom the source

reports the data for 1980. The average ratios for 1990 and 1995, for all countries in this Table, are 26 and 36, respectively. The index is calculated by dividing the total real FI by the GDP for these countries in Maddison (1995); the 1995 datum was approximated by applying to the 1990 datum the growth of the index of real GDP for the OECD countries, from the OECD=s Main Economic Indicators, September 1998.

FDI/GDP1990 2000 2008 1990 2000 2008

World Inward 9 18 25 North Africa Inward 13 18 29 Outward 9 19 27 Outward 1 1 3

Europe Inward 11 25 36 West Africa Inward 19 40 36 Outward 12 37 47 Outward 3 9 4

U.K. Inward 21 30 37 Latin Amer Inward 10 24 28 Outward 23 62 57 Outward 5 10 13

Canada Inward 19 29 28 West Asia Inward 10 10 18 Outward 15 33 25 Outward 2 2 7

USA Inward 7 13 16 China Inward 5 16 9 Outward 7 14 22 Outward 1 2 3

Russia Inward - 12 13 Korea Inward 2 7 10 Outward - 8 12 Outward 1 5 10

India Inward 1 4 10 Turkey Inward 6 7 10 Outward - 0 5 Outward 1 1 2Source: World Investment Report, 2009

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

YEAR 1980 2000 TOTAL WORLD 521 6,086 Developed countries 499 5,316 Western Europe 238 3,422 North America 239 1,520 United States 215 1,293 Other developed countries 23 374 Developing countries 22 752

Source seems to be WIR

Accumulated Foreign Direct Investment into the US, 2001.

[Billions of dollars]All PetroleumManufacturingAll Other

industries Total Total All countries .................................................................1321 96 509 717

Canada .................................................................109 4 40 65Europe .............................................................947 80 397 470 France ..........................................................147 0 75 72 Germany .......................................................153 0 60 93 Netherlands .......................................................158 7 50 101 Switzerland ....................................................126 n.a. 85 n.a. United Kingdom ................................................218 n.a. 67 n.a.Japan ............................................................159 1 54 104

US. Direct Investment Abroad 2001

Manufacturing All Other

All industries 1,382 102 376 903

Canada 139 24 54 62Europe 726 28 204 493 France 38 #VALUE! 16 #VALUE! Germany 61 2 34 25 Netherlands 132 4 35 #VALUE! United Kingdom 249 12 55 182Latin America and Other Western Hemisphere270 11 46 213Africa 16 12 1 3Middle East 13 3 3 7 Australia 34 9 7 18 China 11 1 7 2 Hong Kong 29 0 3 27 Japan 64 1 17 46 Korea, Republic of 10 0 6 4

[Billions of dollars] All industries Petroleum

Inward FDI Stocks in the US, by State.

Thompson: International Economics Example 8.13. Page 294

Inward and Outward FDI/GDP, 1980-2000

year 1980 1985 1990 1995 2000 1980 1985 1990 1995 2000

U.S. Developing CountriesInward 3 4 7 7 12 Inward 10 14 13 15 31Outward 8 6 8 10 13

ChinaU.K. Inward 3 3 7 20 32

Inward 12 14 21 18 31Outward 15 22 23 27 63 Latin America

Inward 7 11 10 12 31Japan

Inward 0 0 0 1 1 MexicoOutward 2 3 7 5 6 Inward 4 10 9 14 17

Netherlands BrazilInward 11 19 23 28 66 Inward 7 12 8 6 33Outward 24 36 36 42 84

Germany SingaporeInward 4 5 7 8 24 Inward 53 74 78 72 104Outward 5 8 9 11 25 Outward 32 25 21 42 58

Source: UNCTAD, World Investment Report, 2002

Japan: Outward FI/GDP

Japan Foreign Investment/GDP

05

10152025

3035

1900 1950 2000

FI/GDP

FDI/GDP

3WFDI/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: Inward Foreign Investment / Fixed Capital Stock

0

20

40

60

1890 1910 1930 1950 1970 1990

Year

Per

cent

FI/K

FDI/K

Canada: Foreign Ownership Ratios, by Sector

Canada: Foreign Control, by Sectors

0

25

50

75

100

1920 1940 1960 1980

Year

Per

cent

age

of T

otal

C

orpo

rate

Equ

ity

Manufacture

Petroleum & Gas

Mining

Other Utilities

Commerce

Mexico: Foreign Ownership of Capital, 1910-1990

Mexico: Foreign Ownership of Capital

0

20

40

60

80

100

1890 1910 1930 1950 1970 1990

Year

Perc

enta

ge

Total Non-Resident. ManufacturingMining PetroleumTransportation Commerce

FI from Oil Exporters

Source: NYT November 28, 2007

US 2006 Outward FI $1,062b Outward FDI $235b

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

010203040506070

1900 1950 2000Year

Per

cent

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 1990 1995 2000 2001 TOTAL WORLD 636 913 1,872 2,912 6,258 6,846 Developed countries 390 569 1,383 2,021 4,124 4,504 Western Europe 232 286 781 1,192 2,498 2,777 United States 83 185 395 536 1,214 1,321 Developing countries 246 344 485 850 2,002 2,181 Africa 34 35 50 78 142 159 Latin America and the Caribbean 50 80 117 201 613 693 Mexico 8 19 22 41 97 116 Asia and the Pacific 161 229 318 571 1,247 1,329 South, East and South-East Asia161 199 284 522 1,168 1,243 China 6 10 25 137 348 395 Hong Kong, China 124 130 148 174 429 452 Taiwan Province of China 2 3 10 16 28 32

Source: World Investment Report