ABSTRACT
Apart from a brief decline in the early 1980s, the foreign direct investment of OECD countries has increased dramatically. Between 1986 and 1990, the amount of global FDI grew at an annual rate of 24 per cent, rising from US$78 to US$184 billion.1 Most FDI still originates from the OECD countries. In 1990, Japan, the US, Germany, France, and the UK were responsible for 69 per cent of the value of global FDI outflows. However, motivated by concerns with rising labour costs, environmental costs, and protectionism, some newly industrialised countries (NICs) have also begun to make more direct investment abroad. For example, Taiwan made US$ 12 billion of foreign direct investment in 1989-90, and Korea made US$ 1.3 billion in these two years and has increased its rate of investment in the EU market since 1992. This pattern reflects several recent and ongoing trends:
First, rising FDI has signified the increasing importance of intra-firm trade - that is, transactions among the subsidiaries of the same MNEs - in world commerce. It has tended to displace arm's-length transactions, and thus to create comparative advantages due to domestic sourcing, economies of scale, transfer pricing, and 'captive' markets...
