McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 15 Multinationals and Migration: International Factor Movements

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Foreign Direct Investment (FDI)  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.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Multinational Enterprise (MNE)  A firm that owns and controls operations in more than one country.  The parent firm of the MNE is located in the home country. The home country is the source country for outward FDI.  The MNE has one or more affiliates located in one or more host countries. The host country is the destination country for inward FDI.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Examples of FDI and Portfolio Investments

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 15.1 – Major Home Countries’ Direct Investments, End of 2002 (Billions of U.S. Dollars)

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Table: Transfer Price Affects Global After-Tax Profit

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Why Do MNEs Exist?  Inherent disadvantages of operating a foreign affiliate competing against local firms.  Firm-specific advantages of the MNE, especially intangible assets.  Internalization advantages in using these assets.  Location factors based on resource costs and availability, customer demand, government policies, and other considerations.  Oligopolistic rivalry that uses FDI in the firms’ strategies for competing.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 15.2 – Gross Immigration Rates into the United States, , and Canada,

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 15.3 – Net Immigration Rates into the European Union,

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 15.4 – Labor-Market Effects of Migration