Foreign Direct Investment

Abstract

Foreign direct investment (FDI) is the prevalent mode of corporate governance to gain control over productive assets abroad. Control is achieved through the transfer of property rights to the foreign firm. Through FDI, companies can exploit their internal (so-called ownership-specific) advantages through combining them with location-specific advantages abroad, for example, market opportunities, resources, and local value chains. Another aim of FDI is to improve ownership-specific advantages by anchoring in foreign technological hot spots. The choice for the mode of governance depends on so-called internalization advantages, that is, the advantages of an in-house (acquisition) solution versus that of a market or contractual (network) solution. Over time, institutional improvements, including more advanced global regulatory frameworks for trading and transacting, have not only enabled more FDI but also the proliferation of other forms of cross-border business governance (networking, joint ventures, etc.). In addition to innovation in business organization, a key role is played here by global institutional players such as the Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), and United Nations Conference on Trade and Development (UNCTAD), and by the formation of macro-regions such as the European Union (EU). Economic geographical work has traditionally focused on the impact of FDI on host regions, on employment, linkages, and increasingly, on knowledge spillover, and (collaborative) innovation. From a more global perspective, the link between FDI and core-periphery patterns has been critically scrutinized. A core question is the role of FDI in the currently emerging ‘archipelago’ structure of the global economy. Another critical contribution focuses on the pervasive role of neoliberal regulation in promoting the interest of dominant firms and their home countries.