FDI: the current state of play

Economic theory has not been delving extensively and systematically into the strictly related phenomena of Foreign Direct Investment (FDI) and Multinational Enterprise (MNE) until the 1980s.1 Two distinct circumstances have been favouring this recent renewed interest: a big surge in the former and a new space for the latter in the mainstream economic theory. FDI – the main way through which MNEs act – has been growing recently at an impressive rate (more than world trade), and that this growth has had the puzzling feature of concerning particularly the industrialised countries, which have been reciprocally engaged in such capital movements. The emergence of a new body of trade and location theory made it possible to enhance the understanding of this phenomenon. The overall theme is on the frontier of the research in international trade and applied industrial economics, and it is complex and unsettled. The subject of this paper is just to fix up ideas about some selected topics. Section I briefly reviews the general theoretical setting from the appearance of the OLI paradigm in the late ‘70s to what has been evolving through the subsequent two decades. Section II surveys the main effects of FDI on the home and the host countries respectively. Section III focuses on European economic geography with the interest in the effects of European economic integration on MNEs’ activity in the form of FDI. Some concluding remarks close the paper