Foreign Direct Investment: Research Issues

Foreign Direct Investment: Research Issues

Foreign Direct Investment: Research Issues

Foreign Direct Investment: Research Issues


This collection undertakes an up-to-the-minute study of the process whereby multinational companies conduct direct trading negotiations with governments.


Bijit Bora

In the past decade there has been considerable interest in the ‘forces for globalisation’. Of these, the international trade in goods and services and the increase in international production through multinational corporations have been identified as being important factors. In 2000 global private foreign direct inflows (FDI) reached US$1.1 trillion compared to US$159 billion in 1991. In fact, the annual growth rate of FDI during the past decade exceeded the growth of both the international trade in goods and services and output.

This rapid growth in FDI has raised a number of policy issues at the national and international level. During the 1960s and 1970s FDI and multinational corporations were generally treated with suspicion, as they were seen to use their economic strength to take advantage of developing countries. During the same period many developed countries enacted legislation to monitor and control the flow of FDI and the activities of multinational corporations. Their concern was less in the context of economic exploitation, but more in the context of economic sovereignty.

Today, however, the general policy position of most countries is to be receptive to FDI. As a result, national governments are actively seeking a better understanding of its determinants, impacts and implications. At the international level, considerable discussion has taken place on the topic of incorporating rules on investment in the World Trade Organisation (WTO). Indeed, at the Fourth WTO Ministerial held in Qatar in November 2001, a decision was taken to orient discussions on this topic with a view to negotiating such rules at a later date. Many see such an initiative as complementing the existing set of multilateral rules on trade in goods and services and on trade related investment measures and intellectual property rights. At the same time, there is also some scepticism of the benefits of such rules.

While at its most basic level foreign direct investment is a dollar of capital crossing an international border, in reality the issues surrounding FDI are more complex. FDI is essentially a package of potentially wealth creating assets that can have a significant impact on home and host countries. The issues relating to FDI range from theories of commercial presence and management issues to the impact of FDI on trade employment, wages, intellectual property and development. As a result representatives from the management field, international trade

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