Tom Kruse raised the World Bank report that FDI in LDCs has a modest effect on jobs in the DCs, and Micheal P. noted that outsourcing (which may not even involve FDI) may be a more common vehicle for DC job loss. It seems to me the outsourcing issue is better discussed in terms of international trade than FDI. However, I agree the report may miss a lot of impacts if it relied on the convention definition of FDI, which includes a lot less than I used to assume. My reading of the fine print indicates that FDI data, for example, excludes: - MNC investments that are financed by borrowing within the host country, e.g. from host country banks (or even foreign banks operating in that country). - MNC investments financed by re-invested profits of subsidiaries in the host country (unlike the US, many countries exclude retained earnings from annual flows of FDI, because they do not cross a national border). So, if Bombardier of Canada uses profits from its auto seat cover plant in Bolivia plus more cash borrowed from the local Royal Bank of Canada to start producing auto engines for export to Canada, this is not 'FDI'. This topic gives me the excuse to ask about another issue: How much outward FDI is actually by third parties, e.g. how much of the FDI from the UK to the EC is actually carried out by US subsidiaries in the UK? In Canadian balance of payments accounting this used to be called "non-resident equity in Canadian investments abroad", but they no longer keep track of it. At last count it was about 30% of total outward Canadian FDI. Any ideas or comparative studies on what this number would be in other countries? Bill Burgess At 12:38 PM 15/12/98 -0800, you wrote: >In response to Tom's question below, I suspect that the Bank of International >Settlements may be correct in so far as they go. The norm is not for a company >to remove jobs via direct investment in a facility abroad. > >Outsourcing is a more likely route. Outsourcing need not involve direct >investment. Besides, the Bank statement is unclear if t would even pick up the >direct investment that leads to outsourcing. > >For example, GM wants to outsource an auto part. I invest in a shop in Bolivia >to make the part, but not direct investment links the change to GM's laying >workers off. > >Tom Kruse wrote: > >> We read: >> >> >BLS DAILY REPORT, MONDAY, DECEMBER 14, 1998 >> >> [snip] >> >> >Outflows of foreign direct investment from rich to poor countries are having >> >only a limited negative impact on employment in source economies, according >> >to the Bank for International Settlements. ... "Fears that jobs are being >> >destroyed in the industrialized countries when multinational enterprises >> >invest in low-wage countries are only in part supported by the evidence," >> >according to a working paper prepared by the bank. ... The authors point >> >out that because of the low degree of substitution between employees in >> >parent companies and their affiliates abroad, even where there may be some >> >displacement of home-country workers due to Foreign Direct Investment, "such >> >effects are likely to have been only moderate" ... (Daily Labor Report, >> >page A-9). >> >> Comments anyone? This would seem to really challenge the "exporting >> manufacturing and other good jobs" thesis of globalization. I suppose we'd >> first need to know what "only in part" means. And what exaclty does >> substitution mean? That the overseas worker directly substitutes the US >> worker? What if in the transfer of the production process innovation >> occurs, eliminating a one-to-one correpsondence between jobs before in the >> US and jobs after overseas? Any insights? >> >> Tom >> >> Tom Kruse >> Casilla 5812 / Cochabamba, Bolivia >> Tel/Fax: (591-4) 248242 >> Email: [EMAIL PROTECTED] > > > >-- > >Michael Perelman >Economics Department >California State University >[EMAIL PROTECTED] >Chico, CA 95929 >530-898-5321 >fax 530-898-5901 > > >
