Multinational Corporations in the Global Economy

Multinational corporations sit at the intersection of production, international trade, and cross-border investment. A multinational corporation is an enterprise that engages in foreign direct investment (FDI) and o ns or controls value adding activities in more than one countr!" (Dunning #$$%, %). M&'s thus have t o characteristics. First, the! coordinate economic production among a number of different enterprises and internali(e this coordination problem ithin a single firm structure. )econd, a significant portion of the economic transactions connected ith this coordinated activit! ta*e place across national borders. +hese t o attributes distinguish M&'s from other firms. ,hile man! firms control and coordinate the production of multiple enterprises, and hile man! other firms engage in economic transactions across borders, M&'s are the onl! firms that coordinate and internali(e economic activit! across national borders. It is difficult to e-aggerate the importance of M&'s in the contemporar! global econom!. In discussing M&'s it is t!pical to distinguish bet een parent firms, the corporate o ner of the net or* of firms comprising the M&', and the foreign affiliates, the multiple enterprises o ned b! parent firms. +his basic terminolog! allo s us to gain a sense of the role that M&'s pla! in the contemporar! international econom!. According to the .nited &ations 'onference on +rade and Development, there are appro-imatel! /%,01$ parent firms that together o n a total of /2$,134 foreign affiliates. In #$$2 these affiliates emplo!ed appro-imatel! / million people orld ide. +ogether, parent firms and their foreign affiliates produce about 31 percent of orld gross domestic product (.&'+AD 3444). +he importance of multinational corporations is not limited to production, as the! are also significant participants in international trade. It has been

estimated that trade ithin M&'s, called intra-firm trade, accounts for about one-third of total orld trade. If e add to this figure the trade that ta*es place bet een M&'s and other unaffiliated firms, then M&'s are involved in about t o-thirds of orld trade.

+hus, M&'s are productive enterprises that b! definition engage in crossborder investment and are heavil! involved in international trade.
,ho are these firms, and here are the! located5 ,hile it is impossible to provide an e-tensive catalog of more than /4,444 firms, table 1.3 does list the orld6s #44 largest M&'s, ran*ed b! their foreign assets. +hese #44 M&'s, among hich are man! familiar names, account for more than #1 percent of all foreign assets controlled b! all M&'s, and for 33 percent of total sales b! M&'s. +hese large M&'s are based almost e-clusivel! in advanced industriali(ed countries7 ninet!-nine of the #44 largest firms are from the .nited )tates, ,estern 8urope, or 9apan and more than 1:/ths of all parent corporations are based in advanced industrial countries (see table 1.%). ;arent corporations are not e-clusivel! a developed countr! phenomenon, ho ever. <ong =ong, 'hina, )outh =orea, >ene(uela, Me-ico, and ?ra(il are also home to M&' parent firms, but these firms are considerabl! smaller than developed countr! firms. @nl! one M&' parent based in a developing countr!, ;etroleos de >ene(uela, ran*s among the orld6s #44 largest. +he fift! largest M&'s from developing countries control onl! A#41 billion of foreign assets, less than ten percent of the assets controlled b! the 14 largest developed countr! M&'s.
+he distribution is reversed hen e consider the affiliates. Developing countries host more than %11,%30 M&' affiliates, hile advanced industriali(ed countries host onl! $0,3/$ (.&'+AD 3444, ##-#%). ,ithin the developing orld, M&' affiliates are

Table 5.2: The Fifty Largest MNCs !an"e# by Foreign $ssets %&''() Firm Beneral 8lectric Ford Motor 'ompan! Do!al Dutch )hell Beneral Motors 8--on 'orp +o!ota I?M >ol*s agen Broup &estle ).A. Daimler-?en( Mobil Fiat )pa <oechst AB Asea ?ro n ?overi (A??) ?a!er AB 8lf AEuitaine )A &issan Motor .nilever )iemens AB Doche <olding AB )on! 'orp Mitsubishi )eagram <onda Motor ?M, AB Alcatel Country .nited )tates .nited )tates &etherlands:. = .nited )tates .nited )tates 9apan .nited )tates Berman! ) it(erland Berman! .nited )tates Ital! Berman! ) it(erland Berman! France 9apan &etherlands:.* Berman! ) it(erland 9apan 9apan 'anada 9apan Berman! France *n#ustry 8lectronics Automotive ;etroleum Automotive ;etroleum Automotive 'omputer Automotive Food and ?everages Automotive ;etroleum Automotive 'hemicals 8lectrical 8Euipment 'hemicals ;etroleum Automotive Food and ?ev 8lectronics ;harmaceuticals 8lectronics Diversified ?everages Automotive Automotive 8lectronics Foreign $ssets $C.0 C3.1 C4 10./ 0#.2 %$.$ %#./ %4.$ %4.0 %4 3$.4 Total $ssets %40.4 3C1.0 ##1 $/.# #41.4 2#.1 1C.4 0C./ C/.3 0%./ /$.# %0.4 3$.2 %4.% 03.4 1C./ %4.2 /C.# %C./ 02.3 /C.# 33.3 %/.1 %#.2 0#.$ Foreign Employment ###,444 #C0,#41 /1,444

#%0,2#1 #%%,$4/ 3#$,003 C0,243 33,344 $0,2CC 344,1C0 04,144 3/3,204 34#,#0# 0#,2%3

3/.C 3/.1 31./ 31./ 3#.$ 3#.2 3#.1 34.% 34.%

13,#0$

;hilips 8lectronics

&etherlands

8lectronics

34.#

31.1

34/,3%/

&e s 'orp ;hillip Morris ?ritish ;etroleum <e lett-;ac*ard +otal )A Denault )A 'able and ,ireless ;lc Mitsui F'o. Gtd Dhone-;oulenc )A >iag )A ?A)F AB Itochu 'orp &assho I ei 'orp Du ;ont Diageo ;lc &ovartis )umitomo 'orp 8&I Broup 'hevron 'orp Do 'hemical +e-aco Inc ?'8 Inc Hero-

Australia .nited )tates .= .nited )tates France France .= 9apan France Berman! Berman! 9apan 9apan .nited )tates .= ) it(erland 9apan Ital! .nited )tates .nited )tates .nited )tates 'anada .nited )tates

Media Food:+obacco ;etroleum 8lectronics ;etrloeum Automotive +elecommunication Diversified 'hemicals:;harmaceutic als Diversified 'hemicals +rading +rading 'hemicals ?everages ;harmaceuticals:'hemic als +rading:machiner! ;etroleum ;etroleum 'hemicals ;etroleum +elecommunication ;hoto 8Euipment

34.4 #$.0 #$.3 #2.1 #2.% #C.$ #C.2 #C.0 #/.C #/./ #/./ #/.4 #1.0 #0./ #0.% #0.% #0.# #%./ #%.1

%4.C 11.$ %3./ %#.C 31.3 %0.$ 3#./ 11.1 3C.1 %3.C 3/.2 1/.2 04.0 03.C 3$.C %/.C 0%.4 0$.0 %1.1 3%./ 3$./ 32.3 3C.C

%C,/44 01,2/4 %%,C04

3,/44 3,4/2 /%,C/# C#,04% 3%,3%$ 2,/#4

)ourceI .nited &ations 'onference on +rade and Development, #$$$.

Table 5.+: ,arent Corporations an# $ffiliates -y !egion ,arent Corporations -ase# in Economy .e/elope# Economies Western Europe United States Japan .e/eloping Economies Africa Latin America and Caribbean Asia Central and Eastern Europe )ourceI .&'+AD 3444, ##-#%. %C,124 %,%2C 0,%%0 #/C 3,4#$ $,22% 3,#14

Foreign $ffiliates Locate# in Economy /#,1$0 #$,#4% %,%3# %,//$ 30,%01 %3C,%#4 3%$,$3C

highl! concentrated in a relativel! small set of countries. +hirteen countries in 8ast Asia and Gatin America host %%#,C02 M&' affiliates, about half of the total affiliates orld ide. 'hina alone hosts 3%1,/2# affiliates. M&'s have also invested heavil! in 8astern and 'entral 8urope during the #$$4s, creating a total of 3%$,$3C affiliates in this region. <ere too affiliates are concentrated in a fe countries7 the '(ech Depublic, <ungar!, and ;oland host #%1,$$C of the affiliates active in this region. ,hile these figures on the location of affiliates are interesting, the! are misleading to some e-tent. As e sa in chapter four, the vast maJorit! of foreign direct investment flo s into advanced industriali(ed countries rather than the developing orld. +hus, even though there are more affiliates based in developing countries than in advanced industriali(ed countries, the affiliates created in advanced industriali(ed countries tend to be larger and more capital intensive than the affiliates created in developing countries.

For hat specific purposes do firms engage in foreign direct investment5 M&' investment can be divided into three broad categories. First, M&'s engage in cross-border investment to gain secure access to supplies of natural resources. For e-ample, the American copper mining firm Anaconda made large direct investments in mining operations in 'hile in order to secure copper supplies for production done in the .nited )tates. Indeed, as table 1.0 illustrates, petroleum and mining is the third most important industr! represented in the top #44 M&'s, ith ## of the largest firms engaged in either oil production or mining.
)econd, M&'s invest across borders to gain access to foreign mar*ets. Much of the cross-border investment in auto production underta*en ithin the advanced industriali(ed orld fits into this categor!. During the #$24s and earl! #$$4s, 9apanese

Table 5.0: *n#ustry Composition of the Top &11 MNCs 8lectronics:electrical eEuipment:computers Motor >ehicle and ;arts ;etroleum (e-ploration, refining, distribution) and Mining Food, ?everages, +obacco 'hemicals ;harmaceuticals Diversified +elecommunications +rading Detailing .tilities Metals Media 'onstruction Machiner!:engineering @ther +otal )ourceI .&'+AD 3444, C2. &''1 #0 #% #% $ #3 / 3 3 C / 3 0 % C #44 &''( #C #0 ## #4 2 2 / / 0 % % 3 3 # 1 #44

and Berman automotive M&'s such as +o!ota, &issan, <onda, ?M,, and Mercedes built production facilities in the .nited )tates in response to concerns that barriers to mar*et access ould limit the number of cars the! ould be allo ed to e-port into the American econom! from 9apanese and Berman plants. During the #$/4s, man! American M&'s made direct investments in the 8uropean .nion to gain access to the common mar*et being created there. As table 1.0 indicates, the auto industr! is the second most heavil! represented industr! among the largest M&'s, accounting for #0 of the top #44 M&'s. +hird, M&'s ma*e cross-border investments to improve the efficienc! of
their operations, b! rationali(ing production and tr!ing to e-ploit economies of speciali(ation and scope. An increasingl! large share of cross-border investment in manufacturing fits into this categor!. In electronics and computers as ell as in the auto industr!, firms allocate different elements of the production process to different parts of the orld. In computers, electronics, and electrical eEuipment, for e-ample, hich account for seventeen of the largest #44 M&'s (see table 1.0), the human and ph!sical capital-intensive stages of production such as design and chip fabrication, are performed in the advanced industriali(ed countries, hile the more laborintensive assembl! stages of production are performed in developing countries. In the auto industr!, the capital-intensive design and production of individual parts such as bod! panels, engines, and transmissions is performed in developed countries, and the more labor-intensive assembl! of the individual components into automobiles is performed in developing countries.

Multinational corporations6 activities in the post ar international econom! have evolved over time. It is common to divide this evolution into t o distinct periods, the immediate post ar period spanning the !ears #$01 to #$/4 and a second period since #$/4. + o features characteri(ed the immediate post ar period. First, American firms dominated foreign direct investment. 'oncerned ith post ar reconstruction and un illing to ris* the balance of pa!ments conseEuences of capital outflo s, 8uropean and 9apanese governments had little interest in encouraging out ard direct investment. As a conseEuence, American firms dominated M&' activit!, accounting for about t o-thirds of the ne affiliates created in this period. )econd, the bul* of M&' investment during this period as oriented to ard 8urope for the purpose of manufacturing. +he push to invest in 8urope as given additional impetus at the end of the #$14s b! the creation of the 8uropean 8conomic 'ommunit!, and thus the earl! #$/4s sa a rapid increase in the amount of mar*et-oriented investment b! American firms in the 'ommon Mar*et countries. @ther direct investments flo ed to developing countries, 'anada, and Australia for natural resource e-traction. In short, American M&'s engaged primaril! in mar*et- and natural resource-oriented foreign direct investment dominated the immediate post ar period. ?oth of these characteristics of M&' activit! have changed dramaticall! since
#$/4. +he earl! dominance of American firms has been increasingl! diminished as 8uropean and 9apanese firms began to engage in foreign direct investment. +he increased role of other industriali(ed nations has more recentl! been accompanied b! the emergence of foreign direct investment b! M&'s based in the Asian &I's and in Gatin America. +hus, hile American firms continue to pla! a large role, the! are not nearl! as

dominant toda! as the! ere in the earl! post ar !ears. At the same time, the relative importance of mar*et- and natural resource-oriented direct investment has fallen and that of efficienc!-oriented investment has risen. As Dunning (#$$/) notes, M&'s increasingl! vie each of their foreign affiliates and, freEuentl!, their associated suppliers and industrial customers, not as self-contained entities, but as part of a regional or global net or* of activities. &e investments are increasingl! underta*en as part of an integrated international production s!stem." +he shift to efficienc!oriented investments and integrated international production s!stems has been made possible in large part b! developments in communications technolog! and, as e sa in chapter four, b! the reduction in trade barriers achieved through the BA++ process. In summar!, during the last fift! !ears multinational corporations have gro n to pla! a centrall! important role in the international econom!. M&'s are, in man! respects, the driving force behind the deepening integration of the global econom!. +he central importance of M&'s in the contemporar! international econom! raises a large number of issues that e e-plore in the pages that follo . Most of these issues can be subsumed under a single EuestionI ,hat are the economic and political conseEuences of M&' activit!5 +o ans er this Euestion e loo* first at the economics of multinational corporations, e-amining h! firms engage in foreign direct investment and ho FDI affects economic activit! in the countries that host it. ,e then turn our attention to the political econom! of M&'s, e-amining the nature of the bargaining relationship bet een M&'s and host-countr! governments and governments6 efforts, unsuccessful to date, to craft an international investment regime.

The Costs an# -enefits of MNC $cti/ity

<o are host countries affected b! M&' activit!5 ,hile it is clear that M&'s are motivated to engage in foreign direct investment to raise their profitabilit!, it is less
obvious hat impact these investments have on the countries that receive them. In fact, most of the controvers! surrounding M&' activit! arises from disputes over ho foreign direct investment affects the host countr!. )ome argue that FDI is highl! beneficial to

the host countr!, hile others argue that M&'s have a negative impact on host countries, particularl! in the developing orld. <ere e loo* closel! at t o elldeveloped perspectives on the impact of foreign direct investment on host countries and then briefl! consider hat the e-isting empirical evidence suggests about the accurac! of these competing perspectives.
+he benign model argues that M&'s ma*e a significant contribution to economic development. Foreign direct investment is an important mechanism through hich savings are transferred from the advanced industriali(ed orld to the developing orld. ?ecause developing countries usuall! have lo savings, FDI can usefull! add to the capital available for ph!sical investment. Moreover, because M&'s create fi-ed investments, this form of cross-border capital flo is not subJect to the problems often posed b! financial capital flo s. Fi-ed investment is substantiall! less volatile than financial capital flo s, and thus does not generate the *inds of boom and bust c!cles e sa in chapter 2. In addition, because M&'s invest b! creating domestic affiliates, direct investment does not raise host countries6 e-ternal indebtedness. @f the man! possible a!s in hich savings can be transferred to the developing orld, therefore, direct
#
#

+hese terms are borro ed from Moran (#$$$). C

investment might be the most stable and least burdensome for the recipient countries. +he benign model also suggests that M&'s are important vehicles for the transfer of technolog! to host countries. ?ecause M&'s control proprietar! assets, hich are

often based on speciali(ed *no ledge, the investments the! ma*e in developing countries often lead to this *no ledge being transferred to indigenous firms. In Mala!sia, for e-ample, Motorola Mala!sia transferred the technolog! reEuired to produce a particular t!pe of printed circuit board to a Mala!sian firm, hich then developed the capacit! to produce these circuit boards on its o n (Moran #$$$, CC-2). In the absence of the technolog! transfer, the indigenous firm ould not have been able to produce these products. +echnolog! transfer can in turn generate significant positive e-ternalities ith ider implications for development (see Braham #$$/, #3%#%4). 8-ternalities arise hen economic actors in the host countr! that are not directl! involved in the M&'-local affiliate technolog! transfer also gain from this transaction. If the Mala!sian Motorola affiliate, for e-ample, as able to use the technolog! it acEuired from Motorola to produce inputs for other Mala!sian firms at a lo er cost than these inputs ere available else here, then the technolog! transfer ould have a positive e-ternalit! on the Mala!sian econom!.
In addition to transferring technolog!, the benign model suggests that M&'s transfer managerial e-pertise to developing countries. Breater e-perience at managing large firms allo s M&' personnel to organi(e production and coordinate the activities of multiple enterprises more efficientl! than host countr! managers. +his *no ledge is applied to the host countr! affiliates, allo ing them to operate more efficientl! as ell. Indigenous managers in these affiliates can then move to indigenous firms, spreading

managerial e-pertise into the host countr!.

Finall!, the benign model suggests that M&'s enable developing countr! producers to gain access to mar*eting net or*s. ,hen direct investments are made as part of a global production strateg!, the local affiliates of the M&' and the domestic firms that suppl! the M&' affiliate become integrated into a global mar*eting chain. +his opens up e-port opportunities that indigenous producers ould not other ise have. +he Mala!sian firm to hich Motorola transferred the printed circuit board technolog!, for e-ample, ound up suppl!ing not onl! Motorola Mala!sia, but also began to suppl! these components to eleven Motorola plants orld ide. +hese opportunities ould not have arisen had the firm not been able to lin* up ith Motorola Mala!sia. +he malign model focuses on man! of the same elements as the benign model, but argues that these factors often operate to the detriment of host countr! economic development. First, rather than transferring savings to developing countries, the malign model argues that M&'s reduce domestic savings. )avings are reduced in t o a!s. First, it is argued that M&'s often borro on the host countr! capital mar*et rather than bring capital from their home countr!. M&' investment therefore cro ds out" rather than adding to domestic investment. )econd, it is suggested that M&'s earn rentsK above normal profitsKon their products and repatriate most of these earnings. <ost countr! consumers therefore pa! too much for the goods the! bu!, ith negative conseEuences on individual savings, hile M&' profits, hich could potentiall! be a source of savings and investment in the host countr!, are transferred bac* to the home countr!. +he amount of domestic savings available to finance proJects therefore falls. +he malign model also argues that M&'s e-ert tight control over technolog! and

managerial positions, preventing the transfer of both. +he logic here is simple. As e sa above, one of the principal reasons for M&' investment arises from the desire to maintain control over proprietar! assets. Biven this, it is indeed hard to understand h! an M&' ould ma*e a large fi-ed investment in order to retain control over proprietar! technolog!, and then once having done so begin to transfer this technolog! to host-countr! firms. Managerial e-pertise is not readil! transferred either, in large part because M&'s are reluctant to hire host-countr! residents into top-level managerial positions. +hus, the second purported benefit of M&'Kthe transfer of technolog! and managerial e-pertiseK can be st!mied b! the ver! logic that causes M&'s to underta*e FDI.

Finall!, the malign model suggests that M&'s can drive domestic producers out of business. +his can happen in one of t o a!s. @n the one hand, domestic firms producing in the same sector ill face increased competition once an M&' begins selling in the domestic mar*et. .sing best practices for management and state of the art technolog!, M&'s can often under-price local firms, thereb! driving them out of business. )econd, M&'s often desire to assemble their finished goods from imported components. As a result, domestic input producers in the same industr! ill find that as the domestic producers the! suppl! are driven out of business, the! have no one to sell their intermediate goods. +hus, local input suppliers can also be driven out of business b! M&'s.
+he benign and the malign models depict dramaticall! different conseEuences from M&' investment in developing countr! economies. ,hich of these t o models is correct5 +he short ans er is that both are7 foreign direct investment is sometimes beneficial for and at other times detrimental to the host countries. + o studies, no

# 4

some hat dated, are suggestive in this regard. @ne stud! e-amined 22 M&' affiliates operating in si- countries (Gall and )treeten #$CC). +he authors found that in t o-thirds of the cases foreign direct investment had a positive impact on the host countr!, and in one-third of the cases the impact as negative. A similar stud! as conducted about ten !ears later. Focusing on 14 foreign direct investments, this stud! found that bet een half and three Euarters of the foreign investments !ielded net benefits to the host countries, hile one-Euarter to one-half of the proJects imposed net costs onto the host countr! (8ncarnation and ,ells #$2/). +hus, foreign direct investment sometimes operates in the manner suggested b! the benign model, and at other times it operates as the malign model suggests.
,hat determines hether an! particular investment ill be beneficial or detrimental to the host countr!5 It is e-tremel! difficult to sa! an!thing s!stematic or conclusive in response to this Euestion. A range of considerations are important, including the specific agreement bet een the host-countr! government and the M&' upon hich the investment is based. ,hile an! broad generali(ations must therefore be treated ith considerable caution, one can suggest that some t!pes of investment begin ith a bias against host countr! development hile other t!pes of investment do not carr! an initial bias. Mar*et oriented and natural resource investments both carr! biases that can limit the contribution the! ma*e to economic development in host countries. First, both t!pes of investment ta*e place under conditions of limited competition. Foreign affiliates in the e-tractive industries often gain monopol! control over the resource deposits of a given countr!, for e-ample, hile affiliates producing for the host-countr! mar*et are often protected from e-ternal competition b! high tariffs. +he absence of

##

competition results in large rents accruing to firms operating in these areas, ith associated efficienc! losses for the host countr!. Moreover, both t!pes of investment can have a negative impact on domestic producers in the host countr!. .&'+AD suggests, for e-ample, that recent investments b! M&'s in copper mining in 'hile ma! have substituted for investments that other ise ould have been made b! the 'hilean national copper compan! ('@D8G'@), hich is the largest copper mining enterprise in the orld and operates ith state-of-the-art technolog!" (.&'+AD #$$$, #C%). Finall!, neither resource oriented nor mar*et oriented investment offers man! opportunities for domestic producers to lin* into international mar*eting net or*s. For all of these reasons e might e-pect host countries to be most li*el! to suffer costs from natural resource and mar*et-oriented investments. 8fficienc!-oriented investments seem to carr! fe er of the biases and offer the
greatest chance that M&' activit! ill have a positive impact on host countries. +he industries in hich these investments occur are usuall! Euite competitive internationall!, hence the M&'6s drive for cost reduction measures, and the level of rents is correspondingl! lo er. )uch investments can (but don6t al a!s) create bac* ard lin*ages to domestic input producers, and thus can promote rather than retard local firm gro th. In particular, efficienc!-oriented investments often cro d-in" rather than cro d out" investments b! domestic firms. For e-ample, it has been estimated that Intel6s decision to construct a microprocessor plant in 'osta Dica ill li*el! give rise to additional investments b! 04 'osta Dican firms (.&'+AD #$$$, #C3). Finall!, the international orientation of such firms creates opportunities for local firms to lin* themselves to global mar*eting net or*s. +he research reported b! 8ncarnation and

# 3

,ells (#$2/) is consistent ith the notion that efficienc!-oriented investments contain fe er of the biases against development that are present in natural resource and mar*etoriented investments. All of the e-port-oriented proJects in the sample of M&' affiliates that the! e-amined provided benefits to the host countr!. For all of these reasons e might e-pect host countries to benefit the most from efficienc!-oriented investments. +he case of )inger )e ing Machines e-perience in +ai an is suggestive of the potential benefits available through ell-managed foreign direct investment. )inger first

began producing in +ai an in #$/0. At the time there ere a number of local se ing machine producers using old technolog! and lac*ing standardi(ation and therefore unable to compete in international mar*ets. As a condition of )inger6s investment, the +ai anese government imposed domestic content reEuirements, insisting that )inger source 2% percent of its parts from +ai anese producers ithin one !ear. In addition, the +ai anese government imposed substantial conditions to ensure technolog! transfers. )inger as reEuired to provide the local parts producers ith standardi(ed blueprints, and ma*e available technical e-perts to assist in local firms6 efforts to produce the specified parts. In addition, )inger as obliged to allo +ai anese se ing machine producers to use the same parts it sourced from local parts producers at a cost close to the orld price for these parts. Finall!, an e-port reEuirement as imposed7 )inger as reEuired to increase its e-ports from +ai an rapidl!.
)inger complied ith all of these reEuirements. +echnical and management e-perts ere dispatched to train local parts producers and to reorgani(e the production s!stem ithin +ai an. +echnical assistance as also provided to local se ing machine
3

?ased on .&'+AD #$$$, 3##. # %

producersKthe ver! firms that comprised )inger6s competitionKat no cost to these firms. ?lueprints and part specifications ere provided to all local parts producers, thereb! allo ing them to or* to common specifications and standards. Finall!, )inger held classes for local parts producers in the technical and managerial aspects of the business. As a direct result of these measures, substantial transfers of technolog!
occurred, and significant bac* ard lin*ages bet een the final se ing machine producers and the parts suppliers occurred. ?! the late #$/4s )inger as sourcing all of the parts for its se ing machines produced in +ai an from +ai anese firms (e-cept the needles). Moreover, 2/ percent of )inger6s local production as e-ported. In addition, +ai anese se ing machine producers became more competitive internationall!. As local parts became standardi(ed and of greater Eualit!, +ai anese se ing machine producers also became able to e-port to foreign mar*ets.
In summar!, M&' activit! is sometimes beneficial for host countr! economic development, and at other times is detrimental to such development. @ne might suggest that natural resource investments are the least li*el! to offer substantial benefits to host countries, hile efficienc! oriented investments are the most li*el! to offer substantial benefits to host countries. Mar*et oriented investments are li*el! to fall some here in bet een these t o t!pes, sometimes offering benefits, and at other times imposing costs. It is important to re-emphasi(e the tentativeness of these broad generali(ations. As e ill see in the ne-t section, M&' activit! has historicall! been subJect to political considerations. As a conseEuence, the impact of an! particular investment on an! particular host countr! is shaped b! the particular agreement bet een the firm and the

# 0

host countr! government. +hese agreements can transform a natural resource investment into a highl! beneficial proposition for a host countr!, and the! can transform an efficienc!-oriented investment into a highl! costl! one. In other ords, hile the preceding discussion is suggestive, the effect that an! particular foreign direct investment ill have on an! particular host countr! ill depend greatl! on the specific details of the case. !eferences 'aves, Dichard 8. #$$/. Multinational 8nterprise and 8conomic Anal!sis. 'ambridgeI 'ambridge .niversit! ;ress.
Dunning, 9ohn <. #$$/. De-evaluating the ?enefits of Foreign Direct Investment," in 'ompanies ithout ?ordersI +ransnational 'orporations in the #$$4s, edited b! .&'+AD. (GondonI International +homson ?usiness ;ress), pp. C%-#4#.

Braham, 8d ard M. #$$/. Blobal 'orporations and &ational Bovernments. ,ashington, D.'.I Institute for International 8conomics. <!mer, )tephen. #$C/. +he international operations of national firmsI a stud! of direct foreign investment. 'ambridgeI MI+ ;ress. =indleberger, 'harles ;. #$/$. )i- Gectures on Direct Investment. &e <avenI Lale .niversit! ;ress.
=obrin, )tephen. #$2C. +esting the ?argaining <!pothesis in the Manufacturing )ector in Developing 'ountries," International @rgani(ation 0# (autumn)I /4$-/%2.

# 1

Moran, +heodore <. #$$$. Foreign Direct Investment and DevelopmentI +he &e ;olic! Agenda for Developing 'ountries and 8conomies in +ransition. ,ashington, D.'.I Institute for International 8conomics. Moran, +heodore <. #$C0. Multinational corporations and the politics of
dependenceI 'opper in 'hile. ;rinceton, &.9., ;rinceton .niversit! ;ress.

)topford, 9ohn M. #$$/. +he Bro ing Interdependence ?et een +ransnational 'orporations and Bovernments," in 'ompanies ithout ?ordersI +ransnational 'orporations in the #$$4s, edited b! .&'+AD. (GondonI International +homson ?usiness ;ress), pp. 311-C$. +eece, David 9. #$$%, +he Multinational 8nterpriseI Mar*et Failure and Mar*et ;o er 'onsiderations," in +he +heor! of +ransnational 'orporations, 9ohn Dunning, editor. &e Lor*I Doutledge, pp. #/%-#23. .nited &ations 'onference on +rade and Development. 3444. ,orld Investment DeportI 'ross-border Mergers and AcEuisitions and Development. BenevaI +he .nited &ations. .nited &ations 'onference on +rade and Development. #$$$. ,orld Investment DeportI Foreign Direct Investment and the 'hallenge of Development. BenevaI +he .nited &ations.
.nited &ations 'onference on +rade and Development. #$$1. ,orld Investment DeportI +ransnational 'orporations and 'ompetitiveness. BenevaI +he .nited &ations.

>ernon, Da!mond. #$C#. )overeignt! at ?a!I the Multinational )pread of ..). 8nterprises. &e Lor*I ?asic ?oo*s.

# /