Marcos C. Holanda and André Matos Magalhães 8.1 INTRODUCTION Much has been said about the positive effects that foreign direct investment (FDI) can have on a recipient country’s development effort.1 Besides providing direct capital financing, FDI can be an important source for transfer of technology in that it creates and develops linkages with national firms. The perception that FDI can thus increase national productivity has led countries to offer incentives to attract foreign investments. Between 1982 and 1993, the total FDI flow into developing countries has increased ninefold, whereas world trade of merchandise and services has only doubled in the same period. De Mello (1997) presents general numbers that help to confirm such behavior: over the period 1980 to 1994, “FDI inflows into developing countries have been concentrated in a few leading Southeast Asian and Latin American economies, and the rate of growth of FDI inflows as a share of exports into those economies has outpaced that of exports as a share of GDP”. During the 1990s, the most important factors explaining the increase of FDI inflows into developing countries seem to be the foreign acquisition of domestic firms in the process of privatization, the globalization of production, and increased economic and financial integration (UNCTAD, 1996). Brazil certainly benefited from this process. In this chapter, we focus on the distributions of FDI among Brazilian regions. To do so, we use the Census data on foreign-owned companies in Brazil from the Brazilian Central Bank. The Central Bank collects data every...
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