An investigation into the power of multinational corporations and an analytical evaluation of the determinants of U.S. foreign direct investment in the European Economic Community :

Abstract

This study concludes that there are many quantitative as well as non-quantitative factors of various socio-economic and political natures that determine the flows of direct investment abroad. The empirical results, based on yearly data for the period of 1950 to 1979, indicate that, among many variables tested in the model, seven are statistically significant in determining the amount of U.S. direct investment abroad. These variables are: the level of output produced by the affiliates of the U.S. companies in host countries, the U.S. interest rate, retained earnings by the affiliates of the U.S. companies, size of the host market, tariff discrimination, wage differentials and growth of the host market.

This study provides historical background on, and explores the philosophy, motivation and nature of, capital movement in general and the role of multinational oil companies in European countries in particular. Also, theoretical and statistical models are developed to determine the major factors affecting the flow of foreign direct investment and to analyze the economic impact of this flow.

On the question of the welfare effect of foreign direct investment, it is concluded that developed host nations tend to gain more from foreign direct investment than do other less developed host countries.

In recent years, increasing attention has been given to the importance of foreign direct investment by multinational enterprises and its contribution to both home and host countries.