ABSTRACT
This chapter focuses on the analytical determinants of multinational activity, that is, the reasons for international production. It discusses cross-investments by multinational enterprises (MNEs) in manufacturing sectors such as chemicals, computers, electronics, automobiles, petroleum and food. The chapter explains the motivation of intra-industry direct foreign investment (IDFI). It considers the exogeneity of the country-specific advantage (CSA) and other environmental parameters. As a special case, some MNEs engage in off-shore assembly to take advantage of cheap foreign labour, a situation where the foreign CSA is a dominant consideration to the MNE. On a definitional note, only one key distinction is necessary, that between inter-industry and intra-industry trade. Horizontally integrated MNEs have a transactional advantage in using a hierarchical administrative structure to control their international production. Cross-investment in the hotel sector is taking place despite the prevalence of US-owned MNEs.
