ABSTRACT
The main task of this chapter is to discuss ways in which production financed by foreign direct investment, that is, undertaken by MNEs, has affected our thinking about the international allocation of resources and the exchange of goods and services between countries. The analysis takes as its starting point the growing convergence between the theories of international trade and production, and argues the case for an integrated approach to international economic involvement, based both on the location-specific advantages of countries and the ownership-specific advantages of enterprises. In pursuing this approach, the chapter sets out a systemic explanation of the foreign activities of enterprises in terms of their ability to internalise markets to their advantage. It concludes with a brief examination of some of the effects which the MNE is allegedly having on the spatial allocation of resources, and on the patterns of trade between countries.
