An Analytic Frame of Reference for Direct Investment

  • H. Peter Gray


Direct investments that result in the creation or the expansion of a foreign subsidiary enterprise can be seen as permanent commitments of capital on the part of the investing corporation. These subsidiaries will have an impact upon the character of the host economy and upon the rate and composition of its output. Through their repatriation of profits to the parent corporation and their trading relations with the parent itself and with other related subsidiaries in third countries, a foreign subsidiary will have an enduring effect upon the host nation’s international accounts and upon its pattern of trade. A third possible effect is that the subsidiary-parent relationship will expedite the transmission of technological knowhow between the two nations to the benefit of either or both. An overall assessment of the benefits that derive to both nations from the act of investment is a complicated matter — primarily because of the large number of dimensions involved in the process.


Host Country Capital Stock Foreign Investment Direct Investment Poor Country 
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  1. 1.
    The reader is referred to H. B. Chenery, ‘The Application of Investment Criteria’, Quarterly Journal of Economics, 67 (Feb 1953) pp. 76–96 and ‘Comparative Advantage and Development Policy’, American Economic Review, 51 (Mar 1961) pp. 18–51.Google Scholar
  2. 1.
    See Elizabeth Jager, ‘Multinationalism and Labor: For Whose Benefit?’, Columbia Journal of World Business (Jan-Feb 1970) pp. 56–64, and Chapter VII below.Google Scholar
  3. 2.
    The classic reference to this phenomenon is Hans Singer, ‘The Distribution of Gains between Investing and Borrowing Countries’, American Economic Review (May 1950) pp. 473–85.Google Scholar
  4. 1.
    See Paul A. Samuelson, Economics, 8th ed. ( New York: McGraw-Hill, 1970 ) pp. 636–7.Google Scholar

Copyright information

© H. Peter Gray 1972

Authors and Affiliations

  • H. Peter Gray

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