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New Directions in Economic Geography

Edited by Bernard Fingleton

This important book explores original and alternative directions for economic geography following the revolution precipitated by the advent of so-called ‘new economic geography’ (NEG). Whilst, to some extent, the volume could be regarded as part of the inevitable creative destruction of NEG theory, it does promote the continuing role of theoretical and empirical contributions within spatial economic analysis, in which the rationale of scientific analysis and economic logic maintain a central place. With contributions from leading experts in the field, the book presents a comprehensive analysis of the extent to which NEG theory is supported in the real world. By exploring whether NEG theory can be effectively applied to provide practical insights, the authors highlight novel approaches, emerging trends, and promising new lines of enquiry in the wake of advances made by NEG.
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Chapter 10: FDI: A Difficult Connection between Theory and Empirics

Anna Soci


10. FDI: a difficult connection between theory and empirics Anna Soci 10.1 INTRODUCTION A good rule of scientific research should be to define the subject precisely and then to examine its relevance. In the case of foreign direct investment (FDI) these two tasks are the only straightforward aspect of this complex phenomenon. What is FDI? FDI is a balance of payments concept involving crossborder transfer of funds. Firm k in country i sets up a productive facility in country j by implanting a new firm (green-field investment) or acquiring an existing firm l or some part of it. The result must be the: obtaining [of] a lasting interest by a resident entity in one country (‘direct investor’) in an entity resident in an economy other than that of the investor (‘direct investment enterprise’). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise.1 The idea of ‘control’, which was present in earlier definitions, has been abandoned in favour of a broader though no less vague concept. What ‘lasting interest’ means is ‘a stake of 10% or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise’ (OECD, 1996, p. 8). This is the threshold in the United States, whereas the legislation in the European Union is not yet completely uniform. The immediate consequence of an...

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