ABSTRACT
Relatively little attention has been paid to the impact of FDI which originates in small economies. While the United States used to be the dominant source of FDI, there has been a notable degree of geographical diversification in recent years. As has been highlighted in this book, a number of small economies in Western Europe have substantially increased their share of the world’s outward FDI. It is in this category that we find the countries which have the largest stock of outward FDI compared with the size of the economy. There may also be different and more pronounced effects of FDI on small countries compared with large ones. FDI is undertaken by MNCs, which own and control production factors in foreign countries. Such investment not only consists of financial flows but, in particular, involves transfers of intangible assets, e.g. in the form of knowledge about production processes, markets, distribution channels and management. Because assets are intrinsic to the organizations they belong to, the opportunities offered by one actor cannot automatically be replaced by any other. There may be strong interdependence in the behaviour of different firms, implying that small changes in initial conditions may give rise to far-reaching effects. Despite the significance of MNCs, it is far from fully understood how their expansion and restructuring are related to international trade, production, employment and technical progress.
