ABSTRACT
Large-scale foreign direct investment (FDI) is a relatively recent phenomenon in the economic interaction between states. While physical trade flows still account for the dominant part of international commercial relations, the rapid growth of FDI during the last decade merits a more thorough theoretical treatment of its impact in the world economic system than has been the case up to now. This notion is particularly valid given the enormous volume of theoretical and empirical work within the field of foreign trade. In addition, when FDI is studied, it is often looked upon as an isolated phenomenon. The close interconnection between commodity and capital flows has seldom been addressed. An early exception was Vernon’s (1966) product cycle model. Although Vernon himself later criticized others for taking his model too literally (Vernon 1979), it is clear that its basic assumptions regarding a natural sequence between foreign trade flows and locational shifts in manufacturing production can be verified. This is particularly important in the case of Pacific Asia, where trade-oriented FDI is a complement to, rather than a substitute for, international trade (Kojima 1978). A basic assumption behind this study is thus that the geographical pattern of commodity flows cannot be understood without an analysis of the spatial distribution of FDI and vice versa. Furthermore, as the development of FDI as a major element in the international economic system is a
fairly recent phenomenon, there is a need to develop a generally accepted methodology for the study of international capital flows.
