Fact 3: FDI goes predominantly toshare of developing countries hasThe - PDF document

Fact 3: FDI goes predominantly toshare of developing countries hasThe advanced countriesÕ share of worldand 78%. This is a lower share than assources of FDI but the breakdown issimilar, with the largest share concentratedthe largest single destination country. The share of worldwide FDI received economies jumped from % in 1988-93 tomore than 40% in 1992-7 before fallingwith China alone taking around onequarter of the total.The increase in FDI flows to developingcountries reflects their growingimportance as a source of financing inthese economies. Figure 3 shows FDIinflows relative to the GDP of the hosteconomy. During 1988-92, advancedcountries received FDI inflows at anaverage annual rate of 0.9% of GDP,countries had increased to 2.3% of GDP,countries had more than doubled to 3.4%of GDP, with Asia and Latin Americataking the lionÕs share.Fact 4: mergers and acquisitionsaccount for the dominant share ofThe establishment of a foreign subsidiarymay take place in two ways: Ôgreenfieldfrom scratch; or a merger with orTable 1 shows that the majority of FDItakes place through M&A and its sharehas increased steadily since the mid-1980sfrom 66% to 76%. The share of M&A isThe most noticeable trend in the sectoralcountries is the increase in the share ofprimary sector. This trend reflects theoverall shift of world GDP from theprimary sector and agriculture towardsservices. The share of manufacturing in FDIÐ approximately 40% Ð is larger than theshare of manufacturing in world GDP Ðapproximately 30%.Table 2 shows the distribution of worldinward FDI stocks: the share of services isprimary sector 8%. The broad sectors inwhich the presence of multinationals isgreatest are characterised by largeinvestments in research and development,a large share of professional and technicalworkers and the production of technicallycomplex or differentiated goods.Fact 6: multinationals are larger andtypically more productive thanMultinationals are generally largecompanies compared with national firms.Their home activities are generally largerthan those of national firms, and foreignsubsidiaries are on average larger thanmeasure of this gap in host countries can CentrePiece Spring 20054 Table 1:Cross-border M&A investments as a percentage of FDIinflows to the host countries1987-911992-941995-971998-2001World66.29%44.75%60.18%76.23%Developed countries77.49%64.93%85.39%88.96%transition economies21.94%15.49%25.79%35.74%Figure 3:Hosts of inward FDI YearPercentage of GDP Multinationals generallyperform better than of foreign subsidiaries with that of allmanufacturing firms in the worldÕs fiveTable 3 shows that foreign subsidiariesare relatively large when size is measuredby number of employees, turnover orproductivity of foreign subsidiaries is aboveaverage, both when measured by turnovercomposition of FDI, which is different fromThe evidence on theFDI is long-term compared with highlyinvestments or bank credits. Suchbuying and then running foreign plants orother activities, and are best thought of asmovements of firms rather thanThe key difference is that firms bring inCiticorp or Credit Agricole does not makemuch of a difference. But whether FDI isa great deal of difference. Indeed, eachcompetences and procedures that gettransferred to foreign operations.Consequently, different investments mighthave substantially different effects on theVariety of motivesThe heterogeneity in the characteristics ofmultinationals is mirrored in the variety ofreasons why firms become multinationals.primarily to serve host country markets. circumvent trade barriers and are boostedby protectionism. In others, they arepromoted by trade liberalisation, as when Table 2:World inward FDI stock by industry IndustryShare of world FDI inward stock (%)TotalFood, beverages and tobacco2.8Textiles, clothing and leather1.0Wood and wood products1.5Publishing, printing and reproduction of recorded media1.0Coke, petroleum products and nuclear fuel1.9Chemicals and chemical products6.7Rubber and plastic products0.6Non-metallic mineral products1.0Metal and metal products3.0Machinery and equipment2.5Electronic and electronic equipment3.6Precision instruments1.4Motor vehicles and other transport equipment3.0Other manufacturing11.6TradeTransport, storage and communications5.9 Table 3:Comparing the average size and labour productivity five biggest national economiesYear:1997FranceGermanyJapanUKUnited StatesForeignAll firmsForeignAll firmsForeignAll firmsForeignAll firmsForeignAll firmsaffiliatesaffiliatesaffiliatesaffiliatesaffiliatesper firm 265.6130.9288.9172.5313.849.1301.925.4782.552.9Turnover per firm ($ millions)61.125.8105.633.8184.111.594.54.5234.610.7Value added per firm ($ millions)18.07.7_6.034.63.432.21.966.23.8Turnover per employee ($ millions)0.230.1970.3660.1960.5870.2340.3130.1770.30.202Value added ($ millions)/employees0.0680.059_0.0350.1100.0680.1070.0730.0850.072 often the best way to Fact 3: FDI goes predominantly toshare of developing countries hasThe advanced countriesÕ share of worldand 78%. This is a lower share than assources of FDI but the breakdown issimilar, with the largest share concentratedthe largest single destination country. The share of worldwide FDI received economies jumped from more than 40% in 1992-7 before fallingwith China alone taking around oneThe increase in FDI flows to developingcountries reflects their growingimportance as a source of financing inthese economies. Figure 3 shows FDIinflows relative to the GDP of the hosteconomy. During 1988-92, advancedcountries received FDI inflows at anaverage annual rate of 0.9% of GDP,countries had increased to 2.3% of GDP,countries had more than doubled to 3.4%of GDP, with Asia and Latin Americataking the lionÕs share.account for the dominant share ofThe establishment of a foreign subsidiarymay take place in two ways: Ôgreenfieldfrom scratch; or a merger with orTable 1 shows that the majority of FDItakes place through M&A and its sharehas increased steadily since the mid-1980sfrom 66% to 76%. The share of M&A isThe most noticeable trend in the sectoralcountries is the increase in the share ofprimary sector. This trend reflects theoverall shift of world GDP from theprimary sector and agriculture towardsservices. The share of manufacturing in FDIÐ approximately 40% Ð is larger than theshare of manufacturing in world GDP Ðapproximately 30%.Table 2 shows the distribution of worldinward FDI stocks: the share of services isprimary sector 8%. The broad sectors inwhich the presence of multinationals isgreatest are characterised by largeinvestments in research and development,a large share of professional and technicalworkers and the production of technicallycomplex or differentiated goods.Fact 6: multinationals are larger andtypically more productive thanMultinationals are generally largecompanies compared with national firms.Their home activities are generally largerthan those of national firms, and foreignsubsidiaries are on average larger thanmeasure of this gap in host countries can CentrePiece Spring 20054 Table 1:Cross-border M&A investments as a percentage of FDIinflows to the host countries1987-911992-941995-971998-2001World66.29%44.75%60.18%76.23%Developed countries77.49%64.93%85.39%88.96%transition economies21.94%15.49%25.79%35.74%Figure 3:Hosts of inward FDI YearPercentage of GDP Multinationals generallyperform better than