Governments, Globalization, and International Business

GOVERNMENTS, GLOBALIZATION, AND

INTERNATIONAL BUSINESS

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Governments, Globalization,

and International Business

Edited by

JOHN H. DUNNING

OXFORD

UNIVERSITY PRESS

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ISBN 0-19-829068-3

ACKNOWLEDGEMENTS

I wish, first, to thank the Carnegie Bosch Institute, Carnegie Mellon University,

for providing me with a grant to commission contributions for this volume and to

prepare it for publication; and also for sponsoring a conference at Georgetown Uni￾versity Conference Center, Washington DC, in June 1995, at which the drafts of

the chapters were discussed. I am particularly indebted to Professor Bruce McKern,

the erstwhile Director of the Institute, for his encouragement and support; and

to Cathy Burstein, also of the Center, for so efficiently and cheerfully organizing

the Conference.

I would also like to express my gratitude to a number of scholars, who kindly

agreed to comment on the draft chapters presented at the Conference. These

included Charles Wolf of Rand School of Public Policy, Raymond Vernon of

Harvard University, Tom Brewer of Georgetown University, Colin Bradford of

the US Agency for International Development, and Gary Hufbauer of the Insti￾tute for International Economics in Washington.

In preparing this volume for publication, I was fortunate to have the editorial

assistance of one of my Ph.D. students at Rutgers—Alison McKaig Berliner;

while my secretary, Mrs Phyllis Miller did her usual excellent job both in typ￾ing my own chapters and in finalizing the manuscript for the publishers. Two

other doctoral students, Lorna Wallace and Cliff Wymbs, provided me with some

notes from Professor Michael Porter's talk at Georgetown, which helped form

the basis of Chapter 3 of this book. I much appreciate the contribution of all

these individuals—not to mention the authors of the chapters of this volume—

towards the successful completion of this project.

Rutgers and Reading Universities

September 1996

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CONTENTS

List of Figures ix

List of Tables xi

Abbreviations xiii

List of Contributors xvii

Introduction 1

JOHN H. DUNNING

PART ONE THE ANALYTICAL FRAMEWORK 29

1. Governments and the Macro-Organization of Economic Activity:

A Historical and Spatial Perspective 31

JOHN H. DUNNING

2. Globalization and National Government Policies:

An Economist's View 73

JUCHARD G. LIPSEY

3. A Business Analytic Approach to Governments and Globalization 114

JOHN H. DUNNING

4. An International Political Economy Perspective 132

SUSAN STRANGE

5. The Architecture of Globalization: State Sovereignty in a

Networked Global Economy 146

STEPHEN J. KOBRIN

PART TWO COUNTRY CASE STUDIES 173

6. Canada 175

ALAN M. RUGMAN

7. Australia 203

HAL HILL AND BRUCE MCKERN

viii Contents

8. The United Kingdom 244

NEIL HOOD AND STEPHEN YOUNG

9. The United States of America 283

ROSE MARIE HAM AND DAVID C. MOWERY

10. France 313

CHARLES-ALBERT MICHALET

11. Germany 335

MARTIN K. WELGE AND DIRK HOLTBRUGGE

12. Sweden 359

MAGNUS BLOMSTROM AND ARI KOKKO

13. Japan 377

TERUTOMO OZAWA

14. East Asia 407

SANJAYA LALL

15. Latin America 431

CLAUDIO R. FRISCHTAK

PART THREE IMPLICATIONS FOR NATIONAL AND

SUPRA-NATIONAL GOVERNANCE 455

16. Implications for National Governments 457

JOHN M. STOPFORD

17. Should there be Multilateral Rules on Foreign Direct Investment? 481

EDWARD M. GRAHAM

Index 507

LIST OF FIGURES

3.1 Selected regional clusters in the USA of competitive industries 116

3.2 The dispersed activities of the Honda Motor Company 118

3.3 The dispersed activities of the Novo Nordisk Group 119

3.4 Government impediments to cluster Formation 121

3.5 Role of government in cluster-upgrading 122

6.1 Elements of a business network 183

7.1 Macro-economic balances 214

7.2 Growth and inflation 215

7.3 The terms of trade and the exchange rate 216

7.4 Savings and investment 217

7.5 External debt 218

7.6 The relative importance of trade 219

7.7 Composition of exports 220

7.8 Foreign Investment, flows 221

7.9 Foreign Investment, stocks 222

8.1 Book value of stock of UK investment by sector, 1992 247

8.2 Book value of stock of UK investment by area, 1992 247

8.3 Foreign Direct Investment Flows as a Proportion of Country GDP

1981-1991 248

8.4 Comparison of Stock of Direct Investment in 1992 248

8.5 Main Recipients of US and Japanese Investments in the EU 248

8.6 Automobile production in the UK 263

8.7 Exports and imports of automobiles 263

9.1 International trade share of US GDP, imports and exports, 1959-1994 285

9.2 Import and export share of US GDP, 1959-1994 285

9.3 Foreign affiliates' share of US manufacturing assets, 1977-1991 286

9.4 US royalty and licensing receipts and payments, 1986-1993 287

9.5 Real hourly wages for men by level of education, 1973 and 1993 288

9.6 Federal investment spending, 1965-1990 291

9.7 The conduct of federal R&D: Defence and non-defence shares, fiscal

years 1949-1996 294

9.8 Incidence of firm-provided training 302

x List of Figures

11.1 Inflows and outflows of German FDI, 1986-1993 339

12.1 Inflows and outflows of Swedish FDI, 1965-1993 361

13.1 The paradox of 'import protection as import expansion' and the

macro-organizational triumvirate 380

13.2 The 'Japanese-Disease' syndrome: An advanced complication of the

'Dutch Disease' 394

LIST OF TABLES

0.1 Some situations in which governments might successfully contain

organizational costs 6

1.1 Some features of the three ages of capitalism 33-4

6.1 FDI between Canada and the USA, 1985-1994 178

6.2 The largest Canadian-owned companies, by size, 1990 and 1993 179

6.3 The largest foreign-owned companies in Canada, by size, 1990 and

1993 180

7.1 Exports, selected countries, 1993 205

7.2 Foreign investment stocks, selected countries, 1992 209

7.3 Comparative R&D indicators, selected countries, late 1980s 210

7.4 Assistance for manufacturing, 1978/9-1992/3 211

7.5 Rankings in world competitiveness, 1994 213

7.6 Trends in Australian R&D expenditure 224

7.7 Composition of Australian R&D expenditure, 1992-3 225

7.8 Payments for technical know-how, 1992-3 225

7.9 Destination of Australian trade, 1950-1992 228

7.10 Trade intensities, 1970 and 1991 230

7.11 Regional composition of foreign investment stocks, 1980 and 1993 232

8.1 Measures of performance of overseas-owned and all enterprises in

manufacturing in the UK, 1991 246

8.2 Industrial structure of overseas-owned and all manufacturing

enterprises in the UK, 1991 246

8.3 Two possible routes to cluster formation involving inward

investment and MNE subsidiaries 251

8.4 Chronology of major events in the automobile industry in the UK 264

8.5 The UK's share of selected world financial markets, 1989-1994 266

10.1 French direct investment abroad, by country, 1992 325

10.2 Distribution of French investment abroad, by sector, 1992 326

10.3 Foreign direct investment in France by investing country 327

10.4 Foreign establishments in France, by sector, 1991 328

11.1 Outward FDI from Germany, regional distribution, 1992 and 1993 340

11.2 Outward FDI from Germany, sectoral distribution, 1986-1993 342

11.3 Inward FDI in Germany, regional distribution, 1992 and 1993 343

11.4 Inward FDI in Germany, sectoral distribution, 1986-1993 344

11.5 Germany as a production location compared to other industrialized

countries, 1993 345

xii List of Tables

12.1 Sectoral distribution of Swedish manufacturing FDI, producing

affiliates, 1970-1990 363

12.2 Geographical distribution of Swedish manufacturing FDI, producing

affiliates, 1970-1990 365

12.3 Sectoral distribution of inward FDI: Majority-owned foreign

affiliates' shares of total employment in Sweden, 1980-1992 368

14.1 FDI inflows, 1982-1992 414

14.2 Inward FDI as % of gross domestic investment, 1981-1994 415

15.1 The privatization experience of Latin America, selected countries

and years, 1984-1993 438-9

15.2 Trade liberalization in Latin America, selected countries and years,

1985-1992 440

15.3 Brazil, evolution of tariff structure, 1987, 1990, 1993 444

15.4 Brazil, tariff levels by major product groups, 1990, 1994 444

15.5 Brazil, imports/domestic consumption, 1990-1992 445

ABBREVIATIONS

AAAS American Association for the Advancement of Science

AD anti-dumping

AGPS Australian Government Publishing Service

AGW Aussenwirtschaftsgesetz

AMC Australian Manufacturing Council

ASEAN Association of South-East Asian Nations

APEC Asia Pacific Economic Cooperation

ATP Advanced Technology Program

BETRO British Export Trade Research Organization

BFCE Banque Franfaise du Commerce Exterieure

BIAC Business and Industry Advisory Committee

BIE Bureau of Industry Economics

BMWi Bundesministerium fur Wirtschaft [German Ministry of Economics]

BNAC British North American Council

CAFC Court of Appeals for the Federal Circuit

CD certificate of deposit

CEC Commission of the European Communities/Countries

CEPR Centre for Economic Policy Research

CER Closer Economic Relations

CIME Committee on International Investment and Multinational Enterprise

CMA Canadian Manufacturers' Association

CMIT Capital Movements and Invisible Transactions

CNPF Centre National du Patronat Fran9ais

CRADA cooperative research and development agreement

CTI Committee on Trade and Investment

CVD countervailing duty

DATAR Delegation a 1'Amenagement du Territoire

DEG Deutsche Investitions- und Entwicklungsgesellschaft mbH

DG Directorate General

DIHT Deutsche Industrie- und Handelstag

DNEA Developing North-East Asia

DREE Direction des Relations Economiques Exterieures

DSA deep structural adjustment

EAAU East Asian Analytical Unit

xiv Abbreviations

EPAC Economic Planning Advisory Commission

EBRD European Bank for Reconstruction and Development

EC European Community

EDI electronic data interchange

EEC European Economic Community

EMU Economic and Monetary Union

EPAC Economic Planning Advisory Commission

ERM exchange-rate mechanism

ERSO Electronics Research and Service Organization

ETM elaborately transformed manufactures

EU European Union

FDI foreign direct investment

FG flying geese

FIAS Foreign Investment Advisory Service

FIFI physical-financial

FIRA Foreign Investment Review Agency

FIRE finance, insurance, real estate

FTA Free Trade Agreement

GATS General Agreementon Trade in Services

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

GNP gross national product

HDTV High Definition Television

IBB Invest in Britain Bureau

1C integrated circuit

1C international corporation

ICSID International Centre for the Settlement of Investment Disputes

ICT information and communications technologies

ID inner-dependent

IEDB International Economic Data Bank

ILO International Labour Office

IMCB Institute of Molecular and Cell Biology

IMF International Monetary Fund

IMP Internal Market Programme

INSEE Institut National de la Statistique et des Etudes Economiques

IP intellectual property

IPE international political economy

IPR intellectual property rights