Firm in Homeserve foreign markets / source from abroad?

Stay domestic

Export

Export or local production?

Import or local production?

ImportMultinational activity:

horizontalMultinational activity:

vertical

no

yes, serve foreign market

yes, source from abroad

exportlocal

productionimportlocal

production

Two types of trade: intra-firm and inter-firmConsisting of trade in final goods, services, and intermediate goods

Two types of multinational activity: horizontal and verticalMultinational = firm owning and controlling value adding activities in two or more countries

triggers intra-firm trade

Figure 2.1 Home firm decision tree

Country A Country B

Market A Market B

Multinational(producer)

Multinational(producer, marketer)

Foreign subsidiary (producer)

Foreign subsidiary (assembler)

FDI

FDI

Finished products

Finished products

Finished products

Finished products

Components

Horizontal multinational

(market seeking)

Vertical multinational

(efficiency seeking)

Fig. 2.2 Horizontal and vertical multinational activity

Figure 2.3 US export shares in 2010

Source: US census Bureau, own calculations

US export shares (%), 2010

S+C America, 10.8

European Union, 18.8

Pacific Rim, 25.5

Canada+Mexico, 32.2

Other, 6.1

Africa, 2.2 OPEC, 4.3

Figure 2.4 A country’s balance of payments

The balance of payments

Goods

Services

Income

Current transfers

Current account

Capital and financial account

Reserve assets

Direct investment

Trade balance

Portfolio investment

Other investment

Capital account

Financial account

The balance of payments

Goods

Services

Income

Current transfers

Current account

Capital and financial account

Reserve assets

Direct investment

Trade balance

Portfolio investment

Other investment

Capital account

Financial account

Source: van Marrewijk (2012, p. 411)

Figure 2.5 Current account balance; % of GDP, 1980-2012

Source: based on data from World Development Indicators online (1980-2010) and The Economist, June 9, 2012, “Trade, exchange rates, budget balances, and interest rates” (2012 estimate).

-8

-6

-4

-2

0

2

4

6

1980 1985 1990 1995 2000 2005 2010

United States Japan

-15

-10

-5

0

5

10

15

20

1980 1985 1990 1995 2000 2005 2010

Malaysia Philippines

-8

-6

-4

-2

0

2

4

6

8

10

12

1980 1985 1990 1995 2000 2005 2010

Netherlands Australia

-6

-4

-2

0

2

4

6

8

10

12

1980 1985 1990 1995 2000 2005 2010

Germany China

a. FDI inflows; US $ bn, 2006-2011

0

500

1000

1500

2000

2006 2007 2008 2009 2010 2011

developed

developing

transition

b. FDI outflows; US $ bn, 2006-2011

0

500

1000

1500

2000

2006 2007 2008 2009 2010 2011

developing

developed

transition

c. FDI flows into developing economies; US $ bn, 2005-2011

0

50

100

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2011

greenfield

M&A

Figure 2.6 FDI flows, 2005-2011

Source: based on data from UNCTAD, World Investment Report 2012; developed = developed economies; developing = developing economies; transition = transition economies.

Value added export (VAX) to GDP ratio; 1995 and 2008 (%)

-10 0 10 20 30 40 50

United StatesBrazil

GreeceTurkeyJapanIndia

SpainFranceMexico

PortugalAustria

ItalyUnited Kingdom

IndonesiaRussia

CanadaPoland

South KoreaFinland

DenmarkGermany

ChinaSweden

AustraliaTaiwan

NetherlandsBelgiumHungary

Czech RepublicIreland

VAX/GDP 1995

change 1995-2008

Figure 2.7 Value added export (VAX) as a share of GDP; 1995 and 2008 (%)

Source: based on World input output Database (WIOD), see wiod.org.

Figure 2.8 Value added distributon of an Apple iPad, 2011

Value added distribution of an Apple iPad

30%

31%

15%

7%

5%

5%

2%

2%

2%

1%

24%

Unidentified profits Costs of inputs: Non-China labor

Non-Apple U.S. profits Taiwan profits

Cost of inputs: China labor Japan profits

costs of inputs: materials

Apple profits

distribution and retail

other

S Korea profits

Source: The figure is based on data provided by Linden et al (2009, 2011). See also The Economist January 21, 2012.

Figure 2.9 Global net capital flows; average for 15 countries, 1870-2010

Net capital flows; current account (% of GDP, abs. value)

0

1

2

3

4

5

6

1870-1889

1890-1913

1914-1918

1919-1926

1927-1931

1932-1939

1940-1946

1947-1959

1960-1973

1974-1989

1990-2000

2001-2010

Source: see Table 2.11; average includes countries listed in Table 2.11 plus Denmark, Finland, the Netherlands, Norway, Spain, and Sweden.

Figure 2.10 Capital outflows; selected countries (% of national savings

Capital outflows (% of national savings)

-10

0

10

20

30

40

50

60

1850 1860 1870 1880 1890 1900 1910year

capi

tal o

utflo

w

United Kingdom

Germany

France

United Kingdom

Source: O’Rourke and Williamson (1999).

Figure 2.11 Evolution of British and American share in foreign assets

Foreign assets; UK and USA share of total

0

0.2

0.4

0.6

0.8

1825 1850 1875 1900 1925 1950 1975 2000year

shar

e of

ass

ets

USA

UK

USA

UK

Source: see Table 2.14

Net private financial flows to emerging and developing economies; $ bn, 1992-2009

C&E Eur

CISCIS

D Asia

D Asia

L Am

SSA

-100

-50

0

50

100

150

200

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Figure 2.12 Net private financial flows to developing economies; $ bn, 1992-2009

Source: IMF, World Economic Outlook database; D Asia = Developing Asia; L Am = Latin America & Caribbean; C&E Eur = Central & Eastern Europe; CIS = Commonwealth of Independent States; SSA = Sub-Saharan Africa.