marketing networks. The greater the supply and distribution links between foreignaffiliates and domestic firms, and the stronger the capabilities of domestic firms to learnfrom the presence and competition from foreign firms, the more likely it is that thequalities/attributes of FDI that enhance productivity and competition will spread.
A comprehensive study by Bosworth and Collins (1999) on the effects of capital inflowson domestic investment for 58 developing countries during 1978-1995 covering nearly allof Asia and Latin America as well as most of Africa finds that an increase of one dollar incapital flows is associated with about 50 cents increase in domestic investment, while theratio is about one-for–one between FDI and domestic investment. There is virtually littleor no impact or relationship between portfolio inflows and investment.FDI has also proved to be resilient during financial crises. Loungani and Razin (2001) point out that such investment was remarkably stable in East Asian countries during theglobal financial crises of 1997-98 in contrast to portfolio equity and debt flows, whichwere subject to large reversals during the same period.UNCTAD, in its recent World Investment Report, asserts that FDI has the potential togenerate employment, raise productivity, transfer foreign skills and technology, enhanceexports and contribute to the long-term economic development of the world’s developingcountries. According to a recent UNCTAD report: on World Investment:
Foreign affiliates of some 64,000 transnational corporations (TNCs) generate 53million jobs.
FDI is the largest source of external finance for developing countries.
Developing countries’ inward stock of FDI in 2000 amounted to about one-thirdof their GDP , compared to just 10 percent 10 percent in 1980.
One-third of global trade is intra-firm trade.Similarly, Mallampally and Sauvant (1999) also assert that the increase in directinvestment flows has laid the foundation for a marked expansion of international production by TNCs, which now have an estimated $3.4 trillion invested in about2