Multinational Firms and Impacts on Employment, Trade, and Technology: New Perspectives for a New Century

By Robert E. Lipsey; Jean-Louis Mucchielli | Go to book overview

3

RELATIONSHIPS BETWEEN TRADE AND FDI FLOWS WITHIN TWO PANELS OF US AND FRENCH INDUSTRIES *
Lionel Fontagné and Michaël Pajot
3.1.

Introduction
Foreign direct investment (FDI) and international production are developing at a high pace. FDI flows have recorded a 19 per cent increase in 1997, and 10 per cent in 1998, to reach roughly USD 440 billion. Around 50,000 parent and 450,000 affiliates operate worldwide (UNCTAD 1998). These affiliates account for 6 per cent of world GDP, compared with 2 per cent in 1982. Intra-firm trade (noticeably trade in goods-in-process) accounts for one-third of world exports and foreign affiliates' sales grow faster than world exports. Global exports of foreign affiliates reached USD 2 trillion in 1997, and their sales 9.5 trillion. The recent increase in FDI flows is twofold:
1 Developing countries are currently liberalizing foreign inward investment. The conclusion of numerous bilateral agreements on FDI has provided the institutional framework for this increase. UNCTAD (1998) reports that such an agreement was signed every two and a half days in 1997 on average. Actually 1,500 agreements are in force all over the world. Thus, developing countries accounted for 37 per cent of total flows in 1997, a 20-point increase since 1990.
2 The second engine of FDI growth is Mergers and Acquisitions. They accounted for half of FDI flows in 1997, banking, insurance, pharmaceuticals and telecommunications being the leading sectors. Key determinants of such overseas operations are the firms' reaction to the increased global competition, the liberalization of capital flows among developed countries,
*We acknowledge for OECD-DSTI support to this research programme since 1996. The French Ministry of Finance and the CEPII have also provided support at different stages.

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