ABSTRACT
Contemporary theories of trade and foreign-owned production are concerned with both the ownership and location of economic activity. This chapter argues that a comprehensive explanation of trade and foreign production in the services sector needs to draw upon both strands of economic theory. It considers the issue of where the value adding activity arising from the competitive advantages is located; and it is where sometimes trade and foreign production are substitutes for each other, and sometimes complementary to each other. The chapter presents some concepts relating to both the nature of services and that of the multinational enterprise. It reviews the main factors affecting the growth of services, and the role of multinational enterprises (MNEs) in that growth. A MNE is an enterprise which both engages in cross-border transactions and ownes or controls value-adding activities in two or more countries. The chapter identifies the main competitive or ownership specific advantages of firms supplying services to international markets.
