The Selected Essays of John H. Dunning, Volume I
Chapter 12: Towards a General Paradigm of Foreign Direct and Foreign Portfolio Investment
Dunning 03 chap 9 10/7/02 11:57 am Page 339 12. Toward a general paradigm of foreign direct and foreign portfolio investment* INTRODUCTION Until the early 1960s, the theory of foreign investment was essentially a theory of international portfolio or indirect capital movements. Capital flowed across national borders, mainly (though not exclusively) through the intermediation of the international capital market; and it did so in search of higher interest rates (discounted for exchange and other risks) and/or higher profits relative to those which could be earned at home. The types of financial device that were involved in these cross-national flows of capital were bonds and notes from the public and private sectors, equities, money market instruments and financial derivatives.1 Capital also crossed borders in the form of direct investments (FDI). FDI historically has been the dominant form of international private capital transfers and has represented a significant proportion of all investment. As can be seen in Figure 12.1 and Appendix 12.1,2 from 1980 to 1995, FDI accounted for 38.7 percent of all inbound foreign investment to all countries in the International Monetary Fund’s Balance of Payments Statistics Yearbook, with a slightly higher proportion (43.4 percent) occurring in the first half of the period than in the second half (32.6 percent).3 Figures 12.2 and 12.3, and Appendix 12.2 show that the vast majority of FDI and foreign portfolio investment (FPI)4 is directed towards developed countries. During the early 1980s, FDI to developing countries was quite small and showed...
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