Abstract
This compilation of summaries of Working Papers released during January-June 1995 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period. Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201.
Foreign direct investment surged during the 1980s as firms from many nations expanded their international operations. This paper surveys a number of aspects of foreign direct investment and its role in the “globalized” world economy. The precise nature of foreign direct investment is examined from both microeconomic and macroeconomic perspectives. Historic patterns of foreign direct investment are explored, with emphasis on the large surge that took place following 1985. The (correct) proposition that foreign direct investment is not synonymous with international transfer of capital is analyzed from both a theoretical and empirical perspective.
Key characteristics of foreign direct investment and the multinational corporations that generate it are examined in detail. These include the determinants of foreign direct investment and the international expansion of firms as best as they are understood. Also analyzed are the relationships between foreign direct investment and capital formation, technology transfer, international trade, and the economic growth of both host (recipient) and home (investor) nations.
The paper concludes by surveying the policy issues that figure in current efforts to put international direct investment under the aegis of the multilateral trading rules. It is likely that in the near future some sort of “multilateral agreement on investment” will be negotiated. Issues of both substance and venue (that is, the question of whether the agreement will be negotiated within the World Trade Organization or some other negotiating body) are discussed.