Chapter 15 Multinationals and Migration a. Multinationals Link to syllabus Chapter 15. Multinationals and Migration Two types of factor flows, capital and labor. Capital can be direct or portfolio—does not involve management control. Portfolio investment is done in second half of book. Reference to multi-national enterprise (MNE) Host country, foreign affiliates. Mentions anti-immigration sentiments in Europe, US.

FDI – Foreign Direct Investment (p. 345) 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. FDI – p. 345 Flow, Stock Key is sufficient ownership to control or influence the management of the company. MNE-operations in more than one country Multinational (or Transnational) Enterprise (or Corporation) A firm that owns and controls operations in more than one country Portfolio vs. Direct Investment

Figure 15.1 p. 348. Major Stocks of (Outward) FDI, 2008 Figure 15.1 p. 348. Major Stocks of FDI, 2004. US biggest single investor. Europe biggest host of FDI. China not listed. Lots of intermediation, UK Switz.

US International Investments/GDP Data source: US DoC

Why do MNEs Exist? (pp. 349-50) First, acknowledge that there are inherent disadvantages of operating a foreign affiliate competing against local firms. Firm-specific advantages of the MNE, especially intangible assets. (a.k.a. organizational advantages). Location factors based on resource costs and availability, customer demand, government policies, and other considerations. Internalization advantages in using these assets. Oligopolistic rivalry that uses FDI in the firms’ strategies for competing. Why do MNEs Exist? Pp. 349=350 Inherent disadvantages of operating a foreign affiliate Firm specific advantages; especially intangible assets Internalization advantages Location factors: resource costs, demand, gov’t policies Oligopolistic rivalry Sometimes referred to as international industrial organization Major proponent of this perspective is John Dunning – ‘eclectic theory.’ and the OLI theory.

Implications of the Dunning/OLI Model Foreign direct investment is often a ‘good thing’ – although we must remember that it will have effects on income distribution, as well as on output and employment. There are several important examples when FDI does not increase national welfare, such as when it is attracted by tariffs or subsidies, or political power. FDI will probably be associated with higher profits, import and/or export propensities, higher wages, more capital intensity. One should view FDI as part of a dynamic world (product cycle) FDI will vary by productive sector OECD countries have lots of both IFDI and OFDI For many countries, FI and FDI have greatly different values.

Table illustrating transfer prices (Pugel, p. 356)

OLI in Turkey Journal of Management Development Vol. 27, #7. 2008

Exporting Jobs and Sales More sales from US subsidiaries overseas, than from US firms in the USA. Source: NYT April 19, 2004

Outsourcing by Toyota Outsourcing by Toyota Source: NYT Oct 21, 2003

Narula/Dunning Investment Development Path IDP: Source, UNCTAD: World Investment Report, 2006 Source: UNCTAD: World Investment Report, 2006 11

Outward Foreign Investment, OECD Countries, 1913-1995

Outward FI/GDP, Twentieth Century

FDI/GDP 1990 2000 2008 World Inward 9 18 25 North Africa 13 29 Outward 27 1 3 Europe 11 36 West Africa 40 12 37 47 4 U.K. 21 30 Latin Amer 10 24 28 23 62 57 5 Canada West Asia 15 33 2 7 USA 16 China 14 22 Russia - Korea 8 India Turkey 6 Source: World Investment Report, 2009 FDI/GDP. Source: WIR 2009

FDI outward stock, by Region FDI outward stock, by Region. Selected years (billions of current US dollars) FDI outward stock, selected years (billions of current US dollars) Source seems to be WIR

Accumulated Foreign Direct Investment into the US, 2001. Accumulated Foreign Investment into the US, 2001

US. Direct Investment Abroad 2001

Inward FDI Stocks in the US, by State. Example 8.13. Inward FDI Stocks in US, by State. Page 294 Thompson: International Economics Example 8.13. Page 294

Inward and Outward FDI/GDP, 1980-2000

Japan: Outward FI/GDP Japan: Outward FI/GDP

Example 8.6 FDI between US and Japan. Page 281 Year is probably around 1990 Source: Thompson: International Economics

Canada: Accumulated Inward Investment/Total Capital Stock

Canada: Foreign Ownership Ratios, by Sector

Mexico: Foreign Ownership of Capital, 1910-1990

FI from Oil Exporters US 2006 Outward FI $1,062b Outward FDI $235b FI from Oil Exporters, compared to US data. US 2006 Outward FI $1,062b Outward FDI $235b Source: NYT November 28, 2007

China: NYT Nov. 24, 2002

Figure 7.1 EU FDI Inflows, 1984-98 page 148 Hansen: European Integration

Table 7.4 Intra-EU FDI Flows. Page 152 Hansen: European Integration

Figure 7.2 EU Cross-border M&A in Manufacturing. Page 149 Hansen: European Integration

Table 7.3 Share of firms’ main motives for M&A Page 191 Hansen: European Integration

Figure 7.3 Share of Intra-EU FDI, by Sectors. P. 154 Hansen: European Integration

Table 7.5 Share of Intra-EU FDI in MFG., by Technology. Page 155 Hansen: European Integration

Table 7.6 Intra-EU FDI Flows of France. Page 156 Hansen: European Integration

Figures 7. 4 and 7. 5. FDI Net Outflows from France inside the EU Figures 7.4 and 7.5. FDI Net Outflows from France inside the EU. Page 157 Figures 7.4 and 7.5. FDI Net Outflows from France inside the EU. Page 157 Hansen: European Integration

Figure 7.6 Trade and FDI between France and EU, 1998. P 159 Hansen: European Integration

US: Inward & Outward FDI Flows, 1982-2004

Narula/Dunning Investment Development Path

US FI/GDP, 1900-2000 US FI/GDP, 1900-2000

World IFDI, OFDI

Top TNCs from LDCs

US: Net International Position, 1988-2005 US: Net International Position, 1982-2004. Source: US DoC. SCB. Source: US DoC. http://bea.gov/bea/newsrelarchive/2006/intinv05_fax.pdf

Link to IIP data Link to intinv05_t2.xls

FDI inward stock, selected years (billions of current US dollars) Source: World Investment Report