TRANSNATIONAL CORPORATIONS

224 Pages·2004·0.83 MB·English

VOLUME 8 NUMBER 1 APRIL 1999
TRANSNATIONAL
CORPORATIONS
United Nations
United Nations Conference on Trade and Development
Division on Investment, Technology and Enterprise Development
Editorial statement
Transnational Corporations (formerly The CTC Reporter) is a refereed
journal published three times a year by UNCTAD. In the past, the
Programme on Transnational Corporations was carried out by the United
Nations Centre on Transnational Corporations (1975–1992) and by the
Transnational Corporations and Management Division of the United
Nations Department of Economic and Social Development (1992–1993).
The basic objective of this journal is to publish articles and research notes
that provide insights into the economic, legal, social and cultural impacts
of transnational corporations in an increasingly global economy and the
policy implications that arise therefrom. It focuses especially on political
and economic issues related to transnational corporations. In addition,
Transnational Corporations features book reviews. The journal welcomes
contributions from the academic community, policy makers and staff
members of research institutions and international organizations.
Guidelines for contributors are given at the end of this issue.
Editor: Karl P. Sauvant
Associate editors: Bijit Bora, Kálmán Kalotay, Michael C. Bonello and
Michael Mortimore
Managing editor: Tess Sabico
Advisory editor for international framework matters: Arghyrios A. Fatouros
Guest editor for special feature on foreign portfolio
and direct investment: Mira Wilkins
home page: http://www.unctad.org/en/subsites/dite/1_itncs/1_tncs.tm
Subscriptions
A subscription to Transnational Corporations for one year is US$ 45
(single issues are US$ 20). See p. 213 for details of how to subscribe, or
contact any distributor of United Nations publications. United Nations,
Sales Section, Room DC2-853, New York, NY 10017, United States – tel.:
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Note
The opinions expressed in this publication are those of the authors
and do not necessarily reflect the views of the United Nations. The term
“country” as used in this journal also refers, as appropriate, to territories
or areas; the designations employed and the presentation of the material
do not imply the expression of any opinion whatsoever on the part of the
Secretariat of the United Nations concerning the legal status of any
country, territory, city or area or of its authorities, or concerning the
delimitation of its frontiers or boundaries. In addition, the designations
of country groups are intended solely for statistical or analytical
convenience and do not necessarily express a judgement about the stage of
development reached by a particular country or area in the development
process.
Unless stated otherwise, all references to dollars ($) are to United
States dollars.
ISSN 1014-9562
Copyright United Nations, 1999
All rights reserved
Printed in Switzerland
Board of Advisers
CHAIRPERSON
John H. Dunning, State of New Jersey Professor of International Business,
Rutgers University, Newark, New Jersey, United States, and Emeritus
Research Professor of International Business, University of Reading,
Reading, United Kingdom
MEMBERS
Edward K. Y. Chen, President, Lingnan College, Hong Kong, Special
Administrative Region of China
Arghyrios A. Fatouros, Professor of International Law, Faculty of Political
Science, University of Athens, Greece
Kamal Hossain, Senior Advocate, Supreme Court of Bangladesh,
Bangladesh
Celso Lafer, Ambassador, Permanent Representative, Permanent Mission
of Brazil to the United Nations and to the International Organizations,
Geneva, Switzerland
Sanjaya Lall, Lecturer, Queen Elizabeth House, Oxford, United Kingdom
Theodore H. Moran, Karl F. Landegger Professor, and Director, Program in
International Business Diplomacy, School of Foreign Service, Georgetown
University, Washington, D.C., United States
Sylvia Ostry, Chairperson, Centre for International Studies, University of
Toronto, Toronto, Canada
Terutomo Ozawa, Professor of Economics, Colorado State University,
Department of Economics, Fort Collins, Colorado, United States
Tagi Sagafi-nejad, Professor of International Business, Sellinger School of
Business and Management, Loyola College of Maryland, Baltimore,
Maryland, United States
Oscar Schachter, Professor, School of Law, Columbia University, New
York, United States
Mihály Simai, Professor, Institute for World Economics, Budapest,
Hungary
John M. Stopford, Professor, London Business School, London, United
Kingdom
Osvaldo Sunkel, Special Adviser to the Executive Secretary, United Nations
Commission for Latin America and the Caribbean, Santiago, Chile;
Director, Pensamiento Iberoamericano, Chile
Raymond Vernon, Clarence Dillon Professor of International Affairs
Emeritus, Harvard University, Centre for Business and Government, John
F. Kennedy School of Government, Cambridge, Massachusetts, United
States
Acknowledgement
The editors of Transnational Corporations would like to
thank the following persons for reviewing manuscripts from
January through December 1998:
Jamuna P. Agarwal
Ernst Becher
Richard Blackhurst
Tom Brewer
John Cantwell
Jorge Carillo
John H. Dunning
Lorraine Eden
Dennis Encarnation
Arghyrios Fatouros
Murray Gibbs
Peter Gray
Eduardo Hecker
Tim Kelly
Robert Ley
Robert E. Lipsey
Rodney D. Ludema
James R. Markusen
Harriet Matejka
Allen Morrison
Allen Morrison
Rajneesh Narula
Aurelio Parisotto
Antonio R. Parra
Robert D. Pearce
Lucia Piscitello
Eric Ramstetter
Magdolna Sass
R. Van Tulder
Obie G. Whichard
Transnational Corporations
Volume 8, Number 1, April 1999
Contents
Page
SPECIAL FEATURE:
FOREIGN PORTFOLIO AND DIRECT INVESTMENT
Preface 7
John H. Dunning and Towards a general paradigm of
John R. Dilyard foreign direct and foreign
portfolio investment 1
Mira Wilkins Two literatures, two story-lines:
is a general paradigm of foreign
portfolio and foreign direct
investment feasible? 53
* * *
ARTICLES
Stuart Ford and Where do Japanese manufacturing
Roger Strange firms invest within Europe, and why? 117
Ans Kolk, International codes of conduct
Rob van Tulder and and corporate social responsibility:
Carlijn Welters can transnational corporations
regulate themselves? 143
BOOK REVIEWS 181
Just published 201
Books received 204
Report from the editor 205
v
vi Transnational Corporations, vol. 8, no. 1 (April 1999)
SPECIAL FEATURE:
FOREIGN PORTFOLIO AND DIRECT INVESTMENT
Preface
This Transnational Corporations special feature is on a timely
subject: the relationships between foreign portfolio and foreign direct
investments (FPI and FDI). It starts with an article by John Dunning
and John Dilyard, suggesting that a general paradigm on FPI and
FDI can be developed, based on an expansion of John Dunning’s
work on OLI (ownership, location, and internalization).
Independently, I had been considering the connections between FPI
and FDI for a number of years. When I read the first rendition of the
Dunning/Dilyard essay, I felt I needed to put on paper some of my
own thoughts. Thus, my contribution deals with the “literatures” on
FPI and FDI, provides historical insights, and seeks to cast light on
the mixtures and varying relationships of FPI and FDI over the years.
I conclude that, at this stage, a general paradigm is not possible. Karl
Sauvant recognized that the two articles would interest TNC readers;
Bijit Bora saw the articles through the refereeing process. We have
appreciated their cooperation in the development of this set of articles.
Our two papers break new ground in providing a formal exploration
of the differences between FPI and FDI and the various relationships
between the types of investment. The two articles suggest that there
are public policy implications associated with the distinctions between
types of investments and, more specifically, with the separate
consideration of FPI and FDI. As we examined the relationships
between FPI and FDI we refined and tempered our views, but became
ever more convinced that discussions of the FPI/FDI interconnections
(or absence thereof) were extremely fruitful. Hopefully, our papers
will stimulate new research, new debate and further inquiries.
Mira Wilkins
Transnational Corporations, vol. 8, no. 1 (April 1999) vii
viii Transnational Corporations, vol. 8, no. 1 (April 1999)
Towards a general paradigm of foreign
direct and foreign portfolio investment
John H. Dunning and John R. Dilyard*
This article attempts to integrate explanations of foreign direct
investment and foreign portfolio investment into a single
paradigm. It shows that the determinants of each possess both
common and distinctive characters, but that historical data on
inbound investment into the United States, and contemporary
data on foreign direct investment and foreign portfolio
investment flows into East Asia and Latin America show they
complement, rather than substitute for, each other.
Introduction
Until the early 1960s, the theory of foreign investment was
essentially a theory of international portfolio or indirect capital
movements. Capital flowed across national borders, mainly (though
not exclusively) through the intermediation of the international capital
market; and it did so in search of higher interest rates (discounted for
exchange and other risks) and/or higher profits relative to those which
could be earned at home. The types of financial devices that were
involved in these cross-national flows of capital were bonds and notes
from the public and private sectors, equities, money market
instruments and financial derivatives.1
Capital also crossed borders in the form of direct investments
(FDI). FDI historically has been the dominant form of international
private capital transfers and has represented a significant proportion
* Mr. Dunning is Professor of International Business and Mr. Dilyard a
Ph.D. candidate in International Business at Rutgers University.
1 The latter have been included in the IMF’s Balance of Payments Statistics
Yearbook (IMF, various years) only recently and are recorded only for the 1990s.
They represent a small fraction of total portfolio capital.
Transnational Corporations, vol. 8, no. 1 (April 1999) 1
of all investment. As can be seen in figure 1 and annex 1.12 from
1980 to 1995, FDI accounted for 38.7 per cent of all inbound foreign
investment to all countries in the International Monetary Fund’s
Balance of Payments Statistics Yearbook, with a slightly higher
proportion (43.4 per cent) occurring in the first half of the period
than in the second half (32.6 per cent).3
Figures 2 and 3, and annex table 1.2 show that the vast majority
of FDI and foreign portfolio investment (FPI)4 is directed towards
developed countries. During the early 1980s FDI to developing
Figure 1. Inbound foreign investment
Source: World Bank (1997a).
2 Prior to 1980, the IMF recorded portfolio investment as the net of inbound
and outbound investment, even though records of direct and portfolio investment
go back to 1970. Also, data from IMF sources differ from that used by the World
Bank (and used elsewhere in this paper) for two reasons. First, although economists
in both institutions continually analyse the data for accuracy and make adjustments
as necessary, the World Bank data goes further back in time. Second, portfolio
investment includes public-sector securities and other investments, in addition to
the private investments.
3 Inbound investment reflects all direct and portfolio investment, including
government bonds and other public debt, that is going into a country and is therefore
a better measure of investment flows than outbound investment, which reflects the
source of investment flows. The vast majority of outbound investment comes from
developed countries.
4 Editor’s note: In balance-of-payments statistics, foreign investment
consists of three components: direct, portfolio and other investment. In this
article, the authors treat portfolio and other investments together as one single entity,
and call this entity “portfolio investment”.
2 Transnational Corporations, vol. 8, no. 1 (April 1999)