The flow of private international capital played a significant role in the development of a number of countries in the hundred years up to 1914. First the United States, then Argentina, Australia, and Canada, were major recipients of such investment, particularly from the United Kingdom. Most of this capital was in the form of bonds, guaranteed by governments. It underwrote the rail and other investments required to develop regions which were rich in natural resources but thinly populated. The borrowing of capital was accompanied not only by real imports of equipment and supplies, but also by a mass migration of...

The statistical material in this volume, drawn largely from a questionnaire, has been supplemented by interviews, and by the limited public sources of information for part of the analysis. Apart from the general advantages and disadvantages of these research techniques there are specific limitations imposed by their use in the present context. In this chapter the major techniques used are described, some comparisons are drawn between the respondent companies and all direct investment firms, and some qualifications introduced about the data.

The first step was to select a number of companies for interviews. The purpose of the interviews was twofold....

Two objectives dominate this chapter. First, an attempt will be made to identify the organization of responsibility, in its formal sense, between the subsidiary and its parent. Certain characteristics of the management and of the board of the subsidiary will be examined, especially the extent to which they are residents and nationals and the extent to which they have been associated with the parent. The forms of contact with officers of the parent will also be considered. Formal titles and organization in themselves tell only a limited amount about the relationship between the companies. The second and much more difficult...

Direct investment is closely bound up with foreign trade. The original investment by the parent firm often results from barriers to imports imposed by the recipient country, particularly in the case of manufactures. This forces the foreign parent to cease shipments of its products in whole or in part and to manufacture or assemble them in a subsidiary or branch. Direct investment then becomes, in effect, a necessary alternative to exports. In these circumstances it should not be surprising that the parent will continue to export components and finished goods to the subsidiary wherever the legal barriers and economic costs...

For many reasons the typical direct investment company will have a significant import of commodities and services, including in particular a substantial trade with the parent firm itself. The original investment by the parent firm often results from barriers to imports imposed by the recipient country, thereby forcing the foreign parent to cease shipments of its products in whole or part and to assemble or manufacture them in the recipient country. High or rising transfer costs for commodities, such as transportation costs, have the same effect. In such circumstances the parent will often continue to export some parts or equipment...

The transfer of knowledge through direct investment may often dwarf the transfer of capital in importance so far as the recipient country is concerned. In this chapter the extent and the terms of transfer of the research, development and other knowledge of the parent firm to the subsidiary will be considered. In addition, the extent to which the subsidiary firms undertake research and development will be examined. Both of these have important implications for the recipient nation.

There is a growing amount of information on expenditures on research and development and the results thereof. Nevertheless, both statistically and analytically this...

Throughout the earlier chapters the question of the efficiency of the direct investment firm has been only touched upon. It is time to consider it, as well as to look at the larger question of the environmental determinants of the efficiency of the firm. Attention here will be focused on comparisons with the parent firm. In a succeeding chapter the economic performance of the subsidiaries will be compared in certain respects with their resident-owned counterparts.

There are various ways in which one can measure the efficiency of the subsidiary relative to its parent. The question which was asked in this...

No characteristic of direct investment firms in Canada has raised more questions than the pattern of ownership. The fact that in most of the firms the voting stock is wholly-owned by the parent has been a source of continuing criticism over the past decade.¹ Canadian governments have used tax incentives in recent years in an attempt to induce such firms to issue shares to the public and appoint more resident directors. A Canada Development Corporation has been under consideration for some time, one of whose major purposes would be to provide capital to larger or new firms which might otherwise...

Underlying much of the discussion in Canada of direct investment companies is the assumption that the results of their operations differ from those of their resident-owned counterparts. The difference, it is usually assumed, is in the direction of an inferior performance by the direct investment firm. The criticisms of their policies and results which were noted in the introductory chapter sometimes carry this assumption explicitly. Frequently the assumption is implicit in the fact that foreign ownership as such is considered the significant or sole determinant of the policy or result in question. These views have already been examined in this...

The conventional theory of foreign investment states that a country benefits from such investment if the growth of domestic real income associated with it exceeds the return to the foreign owners. This is the case where foreign investment is the lowest-cost way of securing the given increase in real income. The benefits from direct investment extend well beyond the supply of capital. The most important benefit is the transfer of knowledge in all of its forms, including new products, production skills, marketing methods, management ability, and access to extensive research-development facilities. Market contacts and guarantees may also be important, particularly...