Theory and Empirics
Edited by Neri Salvadori, Pasquale Commendatore and Massimo Tamberi
Chapter 2: FDI, Mode of Entry and Corporate Governance
Giuseppina Maria Chiara Talamo 2.1. INTRODUCTION Global foreign direct investment (FDI) flows have grown substantially in recent years, despite a dramatic downturn in 2001. According to the World Investment Report (UNCTAD, 2002, 2006), the downturn in FDI was concentrated mainly in developed countries, with modest declines in the developing world and a slight increase in transition economies. It shows that, despite the slowdown, the significance of multinational enterprises’ (MNEs)1 production continues to grow and the global activities of multinationals keep expanding. In particular, this growth was spurred by the share of crossborder capital flows accounted for by multinationals’ FDI. Indeed, in recent decades cross-border flows of FDI have grown at much faster rates than have those of goods and services (UNCTAD, 2001, 2006). The crucial role of multinationals represents the distinguishing feature of the current phase of globalization compared to historical periods (Eichengreen and Irwin, 1999). It is important to emphasise that recent attitudes toward FDI have changed considerably, as most countries have liberalised their policies to attract investment from multinational enterprises. Indeed, FDI has been actively promoted by the Washington consensus as a panacea for economic development. In particular, structural adjustment programmes such as privatisation, trade liberalisation, reduction in state ownership, increased and improved transparency in economic systems, internationalisation of capital markets and macroeconomic stabilisation policies have led to increasing market integration at a global level,2 making FDI more attractive to both advanced and less advanced industrial countries. Considerable efforts have been made by the advanced industrial...
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