ABSTRACT
The largest multinational corporations (MNCs) are in many respects the main agents of globalization. They produce and distribute goods and services across national borders; plan their operations on a global scale; and spread ideas, tastes, and technology throughout the world. MNC parent firms in home countries acquire foreign assets by investing in affiliate or subsidiary firms in host countries. This is foreign direct investment (FDI), which involves management rights and control of assets. FDI often contracts in response to financial crises, but it may expand in response to trade protectionism because MNCs shift production abroad to circumvent trade barriers and take advantage of protected domestic markets. FDI is the largest source of external finance for less-developed countries (LDCs), and during financial crises FDI has been more stable than other capital flows.
