Foreign Direct Investment

The behavior of multinational corporations and their affiliates, and the impact of foreign direct investment on host economies, vary between countries and industries in a systematic way. Multinational corporations select their strategies depending on the characteristics of their technologies and products, as well as the characteristics and policies of the host countries. Some host country governments try simultaneously to influence the behavior of the foreign MNCs operating in their territory, either directly through regulations or indirectly, by affecting the environment in which the MNCs operate. The effects of FDI on the host economy are determined by this intricate interplay of firm and host country strategies. This book summarizes more than a decade of research aiming to understand this interplay. The first part of the book is concerned with differences in firm strategies, both regarding entry decisions and the subsequent operations of foreign subsidiaries. Some of the questions examined in this part of the book are: Why do MNCs seek out joint ventures? When do MNCs enter a new market by acquiring an existing company? What determines the amount of R&D undertaken in a foreign subsidiary, and the amount of intra-firm trade between the parent and the subsidiary? The second part of the book focuses on the effects of FDI on host countries, with particular emphasis on the role of MNCs in international technology transfer. How does FDI affect productivity in local host country firms? What is the role of formal and informal technology transfers? How can host country governments maximize the technology imports of foreign MNCs? The analyses of MNC behavior and the effects of FDI presented in this book are of equal interest to students of international business, economics, and development, and to policy makers in countries hosting foreign MNCs.