Globalization and the New Geography of Foreign Direct Investment

Abstract

Over the past two decades, developments in the global economy have deeply affected the pattern of foreign investment (FDI) by multinational enterprises (MNEs),1 giving rise to a spectacular increase in investment to Asia and to Central and Eastern Europe, modest increases to Japan and the EU, and relatively smaller gains to all other areas of the world.2 This chapter describes these shifts in investment and explores the underlying causes of change. The evidence presented suggests that MNEs have altered their patterns of investment in response to three factors: changes in their own competitiveness; alterations in what they seek from countries in which they invest; and a transformation in the way they link production to local markets. These factors are strongly interrelated and can be defined more technically as: (i) the competitive or ownership-specific (O) advantages of firms; (ii) the competitive or location-specific (L) advantages of countries; and (iii) the modalities by which firms coordinate their mobile O-specific advantages with the immobile L specific advantages of countries (for example, whether firms choose to buy or sell assets, or rights to assets through intermediate product markets and/or network relationships, or whether they prefer to internalize (I) the market for these assets or rights).3 KeywordsForeign Direct InvestmentMultinational EnterpriseTransnational CorporationJapanese FirmForeign AffiliateThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.