ABSTRACT
Accompanying the increase in world trade over the period since the Second World War, there has been an equally rapid growth of private foreign investment. Much of this has taken the form of companies setting up or acquiring a controlling interest in overseas subsidiaries/affiliates. Today, most large companies and many medium-sized firms operate in more than one country. Such companies have come to be variously referred to as multinational companies (MNCs), multinational enterprises or transnational corporations. This chapter discusses the growth of the MNCs over the past half-century and asks what factors best explain the decision of firms to invest abroad. It illustrates the importance of MNCs in world trade and shows that a growing proportion of world trade now constitutes so-called intra-firm or in-house trade. The chapter concludes by discussing whether or not new models of trade are needed to take into account of the growing importance of MNCs in world trade.
