the local trade balance by engaging in export-oriented investment, by displacing imports fromeither foreign parent companies or other foreign suppliers and by enhancing the ability of thenational firms to compete abroad and to meet import competition at home (Orr, 1991)For the first case, if the inward FDI is primarily factor-seeking, trade surpluses mayresult for the developing country since raw material is used to produce natural resourceproducts lacking in the home country and increases export from the host nation to the homecountry and the other countries (Brouthers, Werner and Wilkinson, 1996). In the case of displacing imports, Orr (1991) show that in the analysis of the four industries in the USmanufacturing imports were reduced in the long run. And in the last case, Blomstrom, Kokkoand Zejan (2000), comment that because those foreign firms often possess strong competitiveadvantages in entering world market, such as experience and knowledge of internationalmarketing, established international distribution networks, and lobbing power in their homecountries they may pave the way for local firms to enter the same exports markets, eitherbecause they create transport infrastructure or because they disseminate information aboutforeign markets that can also be used by local firms.However is worth noting that FDI does not automatically lead to positive externalities.It is important to realize that MNCs are not in the business of economic development (Narula,2002). When a firm sets up a plant overseas or acquires a foreign plant, it does so in theexpectation of realizing a higher rate of return than a given home country firm with anequivalent investment. The source of the higher return is the technological advantage,including innovative management and organizational processes as well new productionmethods and technologies allude to. Therefore, multinational firms will not simply hand overthe source of their advantage. (Görg and Greenaway, 2004). Besides that, the benefits of FDIonly occur when there are domestic firms with capacity to learn once they possess skilladvantages and/or imitation capacity from the foreign firm and potential internal infra-structure in the country able to offer such conditions to develop.If the impact of inward FDI on the host economy will vary between industries andcountries is. It seems dependent of the behavior of multinational corporations and theiraffiliates and also of the characteristics and polices of the host countries. Multinationalsdecide their strategies depending on the characteristics of their technologies and products aswell as on the available location-specific resources which can be used for that purpose.Brazil that has been a major recipient of both external credit and FDI. Along withChina and Mexico, Brazil is a leading recipient of net FDI (Table 01). In the first half of the1990s the accumulated investment was around US$2 billion and reached its peak level of more than US$32 billion at the end of the decade, in 2000. In this same year the worldinvestment reached US$1.4 trillion. After that, global FDI inflows declined in 2002 to $651billion or just half the peak level in 2000. (UNCTAD, 2003). However, data from UNCTADin 2004 is predicting that FDI flows will rebound this year, boosted by the improving globaleconomy, higher corporate profitability, recovering M&A transactions and growing investorconfidence.
TABLE 1 - Foreign Direct Investment Flows in Selected Countries (US$ millions)Countries and Regions 1990-95 1996 1997 1998 1999 2000 2001World 225,321 386,140 478,082 694,457 1,088,26 1,491,934735,146Developing Countries 74,288 153 191,022 187,611 225,140 237,894 204,801Brazil 2,000 10,792 18,993 28,856 28,578 32,779 22,457Mexico 8,080 9,938 14,044 11,933 12,534 14,706 24,731China 19,360 40,180 44,237 43,751 40,319 40,772 46,846Source: BACEN, CEPAL and UNCTAD. Prepared by NEIT/IE/UNICAMP