Globalization and Intra-Firm Trade:Further Evidence

Abstract

Multinational enterprises (MNEs) are integrating agents in the world economy by putting the labour, capital and technology available in different countries to most productive use. According to the United Nations’ World Investment Report 2000 (United Nations, 2000), over 63 000 parent companies world-wide have established about 690 000 foreign affiliates in countries other than their own, with the amount of inward FDI stock valued at roughly US$4800 billion in 1999. These foreign affiliates are estimated to have generated total gross product of more than US$3000 billion and total employment of over 40 million in host countries. While about 90 per cent of all parent companies are located in OECD countries, more than half of all foreign affiliates are in operation in non-OECD countries, providing a major source of industrial production and employment in a number of developing host countries.1 MNEs are also significant — and often dominant — players in international trade by extending business networks overseas through direct investment, and providing markets for related parties beyond national boundaries. For example, in the USA, where most consistent trade data by ownership is available, about three-quarters of merchandise exports and 70 per cent of merchandise imports in 1997 were associated with either US-owned or foreign-owned MNEs and their foreign affiliates.2