The Management of Foreign Direct Investment: A Preliminary Assessment

  • Jochen Lorentzen


FDI has become one of the most important sources of capital in the 1980s. Estimates hold total FDI flows in 1990 at around $225 billion. FDI is concentrated within a ‘triad’ consisting of the USA, Western Europe and Japan. In these countries, it is partly driven by an accelerating pace of technological innovations which shorten the life-span of capital stock. About 15 per cent of FDI goes into the developing countries and, although their share in total FDI flows has been falling, it has come to account for three-quarters of all long-term capital inflows to LDCs from private sources. One reason for the growing concentration of FDI in developed countries has to do with the creation or preparation of integrated markets: the European Economic Area (EEA) in and around the EC, NAFTA with the USA as its core and increasingly also within the Association of South East Asian Nations countries. The EC’s drive towards a higher degree of integration reduced transaction costs and provided new incentives to invest for both European and non-European investors. This translates into disincentives for production in ‘outsider’-type-countries whose relatively lower labour costs may be offset by the expected profitability of doing business within the area of integration (Katseli 1992). Even in the absence of such regional blocs, the comparative advantage of low labour costs clearly carries only so far.


Joint Venturis Foreign Firm Trade Liberalisation Domestic Firm Export Growth 
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  1. 4.
    For a Hungarian appraisal, see Balkay (1984) and the contributions to ‘Foreign Direct Investments and Joint Ventures in Hungary: Experience and Prospects’ (1990). More specifically on TNCs, see the description by Simai (1988). Andras Inotai (1990) has tried to summarise the historical lessons from changing government-TNC interaction for Central Europe. He argues that broader economic policies have a more significant impact on the decisions of TNCs than the legal, financial and institutional framework. Unfortunately, the volume is so far available only in Hungarian and thus not accessible to me. However, due to its early publication, Inotai does not give a first appraisal of the effects of increased FDI after 1988 in Central Europe which is what I am trying to do here.Google Scholar

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© Jochen Lorentzen 1995

Authors and Affiliations

  • Jochen Lorentzen
    • 1
  1. 1.Prague College of the Central European UniversityCzech Republic

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