chapter  1
12 Pages

ISSUES OF DIRECT FOREIGN INVESTMENT

The importance of direct foreign investment and multinational corporations (MNC) has significantly increased since the Second World War but, at the same time, the corporations’ activities have created conflicts between international trade and investment and complaints and antagonism from host countries. While the conflicts and criticisms reflect the reality of MNC operations, it is not clear that the corporations must necessarily be condemned. Specifically, the criticisms levied against the institution are based on micro-economic, business administration conceptions which entirely neglect the macro-economic theory of the international division of labour. Through the use of both international trade theory and investment theory, can we not attempt to find types of MNC and direct foreign investment which minimise the host country complaints and which eliminate the conflict between trade and investment? A satisfactory answer is given by an enquiry into ‘Japanesetype’ direct foreign investments with which both trade and investment develop pari passu along the line of comparative advantage, the core of the theory of international trade. This is a central issue which I try to explore throughout the present volume. The plan of the book is presented in the last section of this chapter.