ABSTRACT
This chapter highlights the novel pattern of intra-industry direct foreign investment (IDFI) and its relationship to trade in goods and services. It shows that uncertainty fosters the growth of multinational activity in general and that increased economic uncertainty can account for a large part of the rapid increase of IDFI in the United States. A large but ultimately inconclusive body of research on the causes and consequences of DFI was addressed to major US policy concerns, specifically the relationship of US outward DFI with US domestic employment and the US balance of payments. Consistent with the trade-barriers hypothesis, the increase in actual and threatened protection in some industries — especially electronics and motor vehicles — has been accompanied by a highly pub licised build-up of Japanese DFI in the corresponding sectors. Alan M. Rugman argues persuasively that the stock of competing theories of DFI can be subsumed under the general theory of internalisation.
