Multinational Corporations (MNCs) and Foreign Direct Investment (FDI) have become a much-discussed topic over the recent years. The current wave of globalization, on the one hand, and the worldwide generalized wave of the public sector intervention reform attracting investment to replace the public divestiture, on the other, are among the main explanations for this increased attention. Both causes have led to a rise in the importance of FDI as a source of investment funds for a growing number of countries (for the world as a whole, inward FDI flows, as a percentage of gross fixed capital formation, rose from 2.33 in 1970 to 9.45 in 2005, which represent an increase from $13,417 mn to $916,277 mn, according to UNCTAD, 2006). But the alleged foremost reason is that FDI often involves the transfer of knowledge from one country to another (e.g., Carr et al., 2001), making it a potentially important vehicle for international diffusion of technology, as some theoretical models of foreign investment suggest (Caves, 1974 and 1996; and Markusen, 1995).
The favorable impacts predicted by theoretical models and documented by some empirical studies have been driving a considerable change in the attitude towards inward FDI over the last couple of decades, as most countries have liberalized their policies to attract investments from foreign MNCs. Accordingly, with the expectation that some of the knowledge brought by foreign companies may spill over to the receiving country's domestic firms, governments across the world have lowered various entry barriers and opened up new sectors to foreign investment. Furthermore, an increasing number of national governments also provide a variety of forms of investment incentives to encourage foreign-owned companies to invest in their countries. |
