UNCTAD Report : Worldwide Foreign Direct Investment Reaches Record Levels in 1997 and 1998

• Pages: 358-359

Page 358

Despite the ongoing financial turmoil in east Asia and its effects on other parts of the world, foreign direct investment (FDI) flows are projected to increase by as much as 10 percent to reach a record level of $430-440 billion in 1998. Much of this investment will be concentrated in the industrial countries, central and eastern Europe, and Latin America and the Caribbean, according to World Investment Report, 1998: Trends and Determinants, published by the United Nations Conference on Trade and Development (UNCTAD).

[GRAPHICS ARE NOT INCLUDED]

This rise follows a substantial increase during 1997, when FDI flows rose by 19 percent to $400 billion and outflows flows rose by 27 percent to $424 billion. The report defines FDI as an investment involving management control of an enterprise in one country by an enterprise resident in another country. This long-term relationship distinguishes FDI from foreign portfolio flows and much foreign bank lending, which are inherently short term in nature and which have declined sharply (see chart, page 353).

Determinants

Traditionally, the features that made a country a desirable destination for FDI have been a favorable investment regime, market size, natural resources, market growth prospects, and labor market conditions. Although these remain important, they no longer constitute a significant point of differentiation, the report states. The existence of a favorable investment regime, for example, is now commonplace. Over the past 15 years, the overwhelming majority of countries have introduced measures to liberalize their FDI frameworks, the UNCTAD study observes, making them even more accessible to transnational corporations. Among the measures taken are:

- macroeconomic policies-including sound monetary policies that ensure price stability and affect the costs of capital;

- tax policies that favor investment;

- exchange rate policies that affect the value of transferred profits, acquired assets, and exports; andPage 359

- corporate organizational issues that explicitly address the evolving needs of transnational corporations and domestic firms.

In a world increasingly characterized by liberalization and globalization, firms are looking for places to invest that offer specific advantages or "created assets," including communications infrastructure, marketing networks, and intangibles such as attitudes to wealth creation and...