Multinational Enterprises and the Global Investment Regime: Toward Balancing Rights and Responsibilities

Sauvant, Karl P.

The activities of multinational enterprises (MNEs) – more than 80,000 firms headquartered in one country and controlling assets in another country – have grown substantially over the past three decades.1 While there are no systematic data on nonequity forms of such activities (such as management contracts, licensing and franchising agreements), data do exist on the flows of foreign direct investment (FDI), i.e. investments of 10 percent or more in an enterprise abroad: These flows have risen from an annual average of US$ 50 billion during 1981-1985 to US$ 2.1 trillion in 2007. Flows declined in 2008 and 2009 by some 50 percent, to approximately US$1.1 trillion (table 1), as a result of the financial crisis and recession (and stayed at the same level in 2010). But as long as FDI flows remain positive, the stock of such investment continues to grow, at least in principle. By the end of 2009, this stock had reached US$ 19 trillion, generating sales by foreign affiliates estimated to be worth some US$ 29 trillion (table 1); this sales value was about twice the value of world exports the same year (US$ 16 trillion). In other words, FDI has become more important than trade in terms of delivering goods and services to foreign markets. In addition, some one-third of world trade consists of intra-firm trade, i.e. trade among the various units (foreign affiliates, domestic plants, headquarters) that make up the increasingly integrated international production systems of individual MNEs. Moreover, it is within these corporate systems that the bulk of the world’s commercial research and development is being undertaken and technology and skills are being transferred, and through which the world market can be accessed. Through all these activities, MNEs integrate not only markets but also national production systems on a regional or global scale.

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Initiative for Policy Dialogue
Initiative for Policy Dialogue
Initiative for Policy Dialogue Working Paper Series
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October 17, 2012