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Multinational enterprises have become one of the distinctive institutions of our times. Controversy over their economic and political effects, and over appropriate public policy responses, has become common in home and host countries and in international agencies. Much of this debate is reminiscent of the role of large corporations generally, particularly in their interregional and intergroup effects. The multinational setting, however, would have raised distinctive issues even apart from the strong surges of nationalism and anti-imperialism which have marked recent history. Canada has a long and unusual experience with such enterprises. Foreign control of capital in the nonfinancial industries (manufacturing, petroleum and gas, other mining and smelting, utilities, merchandising) was already 20 percent in 1930 and 25 percent in 1948. It rose to 36 percent by the late 1960s, but has since receded to about 30 percent. In 1975, fully 55 percent of the capital in manufacturing was controlled outside Canada, as was 72 per­ cent of that in petroleum and gas, and 58 percent in other mining. These figures exceed those of other developed countries, although there have been striking increases in recent decades. About 80 percent of the direct invest­ ment capital in Canada is from the United States. Recently, Canadians have xi xii FOREWORD become aware of a surge of Canadian direct investment abroad, which on a flow basis has exceeded inflows (exclusive of retained earnings) for most of the 1970s.

Inhaltsverzeichnis

Frontmatter

Introduction

1. Introduction

Abstract
This study uses economic analysis to evaluate the performance of multinational firms in Canada. It is well known that the multinational enterprise (MNE) is a dominant force in the Canadian economy. The majority of manufacturing industry and most of the petroleum, mining, and other resource industries are foreign owned. The impact of the MNE on Canadian investment, growth, productivity, employment, and the international payments balance has been the focus of many academic and official studies. These studies are reviewed and synthesized below. In addition, the present analysis focuses on the performance of individual MNEs and evaluates their contribution to the Canadian (host) and foreign (home) economies.
Alan M. Rugman

Theory of the Multinational Enterprise

Frontmatter

2. The Theory of Foreign Investment

Abstract
The theoretical literature on direct investment as relevant for the book is discussed here. In this section, a summary of the more recent and relevant literature on direct and portfolio investment is presented, followed by a review of some recent theoretical and econometric work, especially that related to Canada. For a fully comprehensive review of the literature, see Hood and Young (1979).
Alan M. Rugman

3. Towards a Theory of the Multinational Enterprise

Abstract
The construction of a theory that captures the essential characteristics of the multinational enterprise (MNE) is a difficult task. Any such theory is bound to be a simplified abstraction of the complex interrelationships and decisions undertaken by the MNE. As an abstraction, the theory cannot hope to describe accurately and precisely every single detail of the MNE, yet it should be able to isolate the major variables which determine multinational activity and to predict in a general fashion how the MNE will respond to changes in the parameters of its environment.
Alan M. Rugman

4. A Theory of the Multinational Enterprise in a Canadian Context

Abstract
This chapter explores the conditions under which foreign markets are serviced by a multinational enterprise (MNE) in one of three ways: international trade, foreign direct investment (FDI), or licensing. This extension of Chapters 2 and 3 builds upon previous work by Horst (1974), Hirsch (1976), and Casson (1979). It is assumed that the MNE has a monopolistic advantage in the production and marketing of a knowledge intensive good. The MNE has to determine an appropriate strategy to service both home and foreign markets in order to maximize profits. The model that is developed is applied to the special conditions of Canada in the final section.
Alan M. Rugman

Performance of Multinationals in Canada

Frontmatter

5. An Empirical Analysis of Profits and Risk in Canadian Multinationals

Abstract
This chapter reports the most arresting results of two research projects which have examined the level and variability of profits in two Canadian industries dominated by multinational enterprises (MNEs). The major findings are that profits of MNEs and their Canadian subsidiaries are not excessive, but that parent MNEs enjoy more stable profits than their Canadian subsidiaries. This has important policy implications for the taxation policy of the host government. The techniques used to measure risk include applications of portfolio theory in an international context, in which the mean and standard deviation of profit rates are examined.
Alan M. Rugman

6. Private and Social Rates of Return from U.S. Foreign Direct Investment in Canada

Abstract
This chapter presents and interprets the result of an empirical investigation of the private and social rates of return on U.S. foreign direct investment in Canada. Three areas of high foreign ownership are chosen for study: mining, petroleum, and manufacturing sectors. Private return means the return to an individual investor, whereas social return incorporates tax effects and represents the return to society at large. The methodology of this investigation follows that of Grubel (1974).
Alan M. Rugman

7. Transfer Pricing in the Canadian Mining Industry

Abstract
It is frequently alleged that the multinational enterprise has the market power and managerial ability to engage in transfer pricing. Both critics of the MNE, and even its supporters on occasion, have argued that the MNE can use its internal organizational structure to charge nonmarket prices for intermediate inputs. It can thereby influence the net revenues earned by the parent firm and the various subsidiaries. Here I argue that the extent to which the MNE uses its own internal market to manipulate intracorporate prices of intermediate goods will be influenced by external factors such as the taxation policy, tariffs, and capital controls of national governments.
Alan M. Rugman

8. The Economic Impact of Multinationals in Canada

Abstract
This chapter is concerned with the economic impact of U.S.-owned multinationals on the growth and development of Canada. Special attention is directed toward the mining industry and an analysis of its contribution to the Canadian economy is reviewed. The role of the MNE as an agent for the transfer of technology is discussed. Regional aspects of the MNEs in Canada are examined with reference to the Economic Council of Canada study on regional disparities.
Alan M. Rugman

Public Policy Towards Multinationals

Frontmatter

9. The Foreign Ownership Debate in Canada

Abstract
Recent reports (Watkins 1968, Wahn 1970 and Gray 1972)1 have examined the impact of foreign investment on the Canadian economy and its implications for American-Canadian political and economic relations. Official reports have considered only direct investment as a problem and portfolio capital has been ignored. There is substantial foreign ownership (mostly American) in the Canadian manufacturing, resources, and mining sectors.
Alan M. Rugman

10. The Regulation of Foreign Investment in Canada

Abstract
The economic benefits of foreign investment are being questioned by influential groups of Canadians. This has resulted in political action to mitigate the suspected adverse effects of foreign investment. Since April 1974 the Foreign Investment Review Agency (FIRA) has reviewed all foreign takeovers and mergers, and since October 1975 it has been responsible for screening new types of foreign investment.
Alan M. Rugman

11. Tariff and Trade Effects of Multinationals in Canada

Abstract
Orne of the great paradoxes of Canadian economic history is that foreign direct investment has been attracted by the Canadian tariff. The large amount of foreign ownership of Canada’s manufacturing sector was encouraged by the tariff. The aim of the tariff was to protect and build up indigenous industry, yet the subsidiaries of U.S. multinationals entered instead. As we have seen earlier, much of the motivation for such multinational activity is explained by the theory of internalization. Yet, as a policy device, the tariff has been a disaster.
Alan M. Rugman

12. Conclusions

Abstract
The objectives of this book were to introduce recent developments in the theory of trade and foreign investment to a wider audience and to relate this literature to the Canadian debate on foreign ownership and regulation of multinationals.
Alan M. Rugman

Backmatter

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