Volume I contains 12 chapters providing a detailed overview of the most important and current issues related to foreign direct investment (FDI) and multinational enterprises (MNEs). FDI has increased tremendously in recent decades. Its structure, patterns and breadth have dramatically changed, with significant impact on sending and receiving countries alike. Understanding the changing nature of FDI and MNEs, their characteristics, the factors that affect them, and their effects on sending countries and host nations is the goal of this volume. In this "new world of FDI", it is more important than ever to understand the potential costs and benefits that they generate.
The volume is divided into four major themes, each comprised of three chapters. They discuss a variety of topics, such as: the global rise and spread of FDI and the emergence of developing countries as both hosts and sources of FDI; theories of MNEs; location choices of MNEs; the determinants of FDI, including the links between FDI, migration and environment; and the impact of FDI on technology transfers, and economic development, among others.
Chapter 1 by Kalman Kalotay highlights the remarkable changes in global FDI flows and stocks, and the structure of FDI during the past quarter-century. It presents several recent notable trends in FDI including its fast growth, geographical diffusion, shifting patterns, and the increasing complexity, volatility and financialization of FDI. A special section is devoted to the importance of global value chains, which have grown exponentially in recent years. The chapter concludes with the global implications of these extraordinary changes in FDI.
In Chapter 2, Difei Deng and Kamal Saggi present global trends in trade, FDI, and innovation during the past quarter-century. The chapter discusses the significant recent development of global R&D networks, focusing on the increased R&D spending of foreign subsidiaries of MNEs, particularly in emerging markets like China and India. More specifically, this chapter explains the growth of international co-invention, which reflects an expanded international division of labor within global R&D networks, similar to the slicing of the global production chain. It also documents the dramatic increase of innovation and patenting activities by developing countries in recent years, including China and India, which have been the foremost innovators.
Next, Chapter 3 by Steven Poelheke provides an analysis of the possible interplay between FDI and overall financial globalization, both of which have increased greatly. This analysis addresses the question of whether — and how — FDI and financial globalization are linked, and also discusses empirical findings on the role of trade credit, the emergence of global banking, and the effects of the recent financial crisis. The chapter stresses the importance of transactions costs for FDI and the role of global banks and financial globalization in reducing these costs and assisting FDI.
MNEs are at the heart of the remarkable increase of FDI flows, thus their importance in the global economy can hardly be overstated. Chapter 4 by Rajneesh Narula and Jong Min Lee provides a comprehensive overview of the theories that have been proposed to explain MNEs and their relationships to FDI. The authors start by reviewing the early theories of MNEs, which emphasized the proprietary, firm-specific advantages or assets that MNEs have. They also examine John Dunning's eclectic paradigm of FDI, which provides a more general framework to explain the activities of MNEs, their interaction with locations, and the choice of governance. More recently, globalization has changed drastically the nature of MNEs, increasing their cross-border activities and transforming their organizational structures. In light of this, Chapter 4 addresses several emerging theoretical and conceptual issues regarding MNEs, including the evolution of network MNEs, and the upsurge of emerging countries' MNEs.
Chapter 5 by Raymond J Mataloni provides an extensive survey of the most recent theoretical and empirical literature on the location choices of MNEs. They examine the reasons why MNEs go abroad, how MNEs assess various possible locations, and what location characteristics are most important when choosing among various possible foreign places. The chapter reviews the empirical literature on MNEs' location choices and highlights the importance of factors such as market size and wages in determining the foreign location of MNE subsidiaries.
In Chapter 6, Peter H Egger and Michael Stimmelmayr offer an analysis of the complex issues related to the taxation of MNEs. The chapter covers the general topic of taxing cross-border firm activity, and describes in detail various types of taxes and their effects on MNEs activities. It examines bilateral tax laws as remedies to double taxation, multinational tax avoidance, and explores desirable characteristics for systems of taxing foreign source income.
Chapter 7 by Andreas Waldkirch examines the main theories of the determinants of FDI, presents a survey of the existing empirical research on these determinants, and discusses the shortcomings of these studies. The chapter highlights the challenges for future research generated by recent changes in their structure, particularly the growing flows of FDI out of developing countries and into other developing or developed countries.
Chapter 8 by Jose L Groizard and Joan Martín-Montaner examine in detail the growing literature on the relationship between FDI and migration. The chapter reviews the conceptual and methodological issues involved in analyzing the role of ethnic networks in overcoming informational barriers between countries and facilitating FDI. It discusses in detail how migrants can complement FDI, depending on the size of the migrant population, their skills and education levels, and the types of jobs they hold. The chapter summarizes the findings of the existing empirical literature and discusses future research.
In Chapter 9, Jayjit Roy tackles the complex link between FDI and environmental regulations. According to the Pollution Haven Hypothesis, firms in polluting industries may seek to locate production in countries where environmental norms are laxer in order to reduce the costs associated with stringent environmental regulations in their home country. This may possibly turn developing countries into pollution havens, or spur a race to the bottom in environmental standards. Chapter 9 focuses on examining the Pollution Haven Hypothesis, and reviews the literature on environmental standards and their effects on inbound and outbound FDI. The challenges of the empirical literature linking the two are highlighted and the main findings of this literature are discussed.
Chapter 10 by Laura Alfaro and Jasmina Chauvin discusses the impact of FDI on the economic development of host countries. It evaluates the role played by local market conditions in affecting FDI inflows and in facilitating the potential benefits from FDI. In particular, this chapter concentrates on the complementarities between FDI and local financial development, and explores the crucial role of local financial markets in facilitating the potential benefits of FDI. The authors discuss how FDI affects economic development in host countries through its impact on capital inflows, generating macroeconomic benefits (GDP growth, productivity and exports), and microeconomic benefits (spillover effects, competition, reallocation). The chapter documents how financial conditions in host countries enhance or limit the economy's ability to benefit from FDI inflows.
Next, in Chapter 11, Bruno A Merlevede examines the technological spillovers transmitted by foreign MNEs to local firms in host countries. Policy makers, particularly in host developing countries, expect that some of the superior techonologies, management skills and marketing techiques that MNEs bring will spill over to domestic firms and increase their productivity and competitiveness. These technological spillovers occur through horizontal (within industry) or vertical (inter-industry) channels, and are usually the main argument in favor of the evergrowing subsidies and other incentive packages offered by governments to MNEs in order to attract them to locate in a specific country or region. The empirical evidence testing the existence of spillovers is surveyed. The chapter provides an overview of the general findings of this literature and highlights the factors that impact the type — and the magnitude — of productivity spillovers generated by FDI.
Chapter 12 by Galina Hale and Mingzhi Xu presents a theoretical model that captures the various channels through which FDI can impact host countries' labor markets. It also provides a comprehensive overview of the empirical studies on these issues. The authors distinguish between the direct effects of FDI on firms and industries, and the spillover effects on host countries' labor markets. The authors also examine the differences in the effects of FDI on labor markets in developed versus developing economies.
Sample Chapter(s)
Introduction
Chapter 1: Figure 5. Share of developing regions in world outward FDI stock, 1991–2015 (%).
Chapter 2: Figure 1. National R&D intensities.
Source: World Development Indicators (2015)
Chapter 2: Table 9. Patent grants as share of developing countries at the USPTO.
Chapter 3: Figure 2. Foreign assets by category.
Note: Stock of 86 countries for which data are available since 1970.
Source: Updated and extended version of dataset constructed by Lane and Milesi-Ferretti (2007) and World Bank's World Development Indicators (2013).
- About the Editor-in-Chief
- About the Volume Editor
- About the Contributors
- Acknowledgements
- List of Figures
- List of Tables
- Introduction (Mariana Spatareanu)
- Part I: The Global Rise and Spread of Foreign Direct Investment:
- A Quarter Century of Global Foreign Direct Investment: A Shifting Landscape (Kalman Kalotay)
- Trade, Foreign Direct Investment, and Innovation: The Emergence of Developing Countries in the Global Economy (Difei Geng and Kamal Saggi)
- Financial Globalization and Foreign Direct Investment (Steven Poelhekke)
- Part II: Understanding the Multinational Firm:
- The Theories of the Multinational Enterprise (Rajneesh Narula and Jong Min Lee)
- Location Choices of Multinational Corporations (Raymond J Mataloni)
- Taxation and the Multinational Firm (Peter H Egger and Michael Stimmelmayr)
- Part III: The Determinants of Foreign Direct Investment:
- Determinants of Foreign Direct Investment (Andreas Waldkirch)
- The Network Approach to Foreign Direct Investment–Migration Linkages (José L Groizard and Joan Martín-Montaner)
- The Pollution Haven Hypothesis: A Select Review of the Empirical Literature (Jayjit Roy)
- Part IV: The Consequences of Foreign Direct Investment:
- Foreign Direct Investment, Finance, and Economic Development (Laura Alfaro and Jasmina Chauvin)
- Foreign Direct Investment and Productivity Spillover Effects (Bruno A Merlevede)
- FDI Effects on the Labor Market of Host Countries (Galina Hale and Mingzhi Xu)
