The Multinational Corporation and Direct Investment

Abstract

When a firm embarks on production in a foreign land, it faces new choices and opportunities. It must deal in a different currency, it must pay different factor costs, and it will be taxed under different laws. The corporate response to these fresh alternatives is an intriguing subject that has attracted much research. But the problems of multinational production have assumed more than academic interest with the rapid expansion of U.S. direct investment abroad from $7 billion in 1935 to $86 billion in 1971. This expansion has aroused fears for the prosperity of home countries and for the sovereignty of host nations (Servan-Schreiber, 1968; Levitt, 1970). Table 1 draws together figures for U.S. direct investment and for gross domestic product of host countries in a number of regions. On the whole, U.S. multinational corporate activity has expanded more rapidly than host-country gross product. During the years 1965–70, for example, U.S. direct investment in the United Kingdom grew 3.6 times as fast as U.K. gross product; in Western Europe as a whole it grew 1.6 times faster; and in Australia, New Zealand, and South Africa, 1.8 times faster. The principal exception to this pattern was Latin America, where, during the 1955–65 decade, U.S. direct investment grew more slowly than domestic gross product. British direct investment overseas has also grown more rapidly than the domestic output of host countries, at least in the main industrial countries.

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