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Geneva, Switzerland, 19 August 2004

How do countries stack up against one another in terms of their outward foreign direct investment (FDI) performance against each other? Which have seen greater increases in the transnationalization of their economies? UNCTAD´s new Outward FDI Performance Index, the results of which are released today, measures the relative importance of a country´s outward FDI against its economic size (as measured by GDP) (1), "The Index shows that small developed and developing countries invest relatively more abroad than big ones and that there is greater potential for outward FDI for some big countries", says Karl P. Sauvant, Director of UNCTAD´s Investment Division.

Broadly speaking, the Index reflects two sets of factors that determine outward FDI by transnational corporations (TNCs) headquartered in a given country. Or, to put it in other terms, differences in the Index values among countries reflect differences in these two sets of factors determining outward FDI by TNCs headquartered in different countries:

  • "Ownership advantages", or firm-specific competitive strengths of TNCs (such as innovation, brand names, managerial and organizational skills, access to information, financial or natural resources, and size and network advantages) that they are exploiting abroad or wish to augment through foreign expansion.
  • "Location factors", which reflect primarily economic factors conducive to the production of different goods and services in home and host economies, such as relative market size, production or transport costs, skills, supply chains, infrastructure and technology support.

Driven by the competitive pressures of a globalizing world economy, both factors work together to lead firms - large and small ones, from developed and developing countries alike - to invest abroad by establishing foreign affiliates. These affiliates then become a source of the competitive strength of their respective corporate networks.

Bearing in mind the nature and origin of some FDI flows and stocks ("Roundtripping" where investment is made abroad for tax reasons and ends up back in the home country, is one such problem), the ranking of countries by Index values confirms the expectations (table 1):

  • Relatively small economies (e.g. Denmark, Finland, Netherlands, Sweden and Switzerland) figure prominently on the top of the list. This suggests that these economies have highly competitive enterprises with ownership advantages that enable them to compete successfully in international markets, overcoming the disadvantages of operating in foreign locations. On the other hand, it also reflects the relatively small size of markets in their home economies, which is what drives them to expand abroad.
  • Countries at the top of the Index also include a number of developing economies from South-East Asia (e.g. Hong Kong (China), Malaysia and Singapore). Firms from these relatively small, open economies are subject to the same competitive pressures of the globalizing world economy as their counterparts from developed countries, and are thus increasingly building up their competitive strength for expanding through FDI.
  • A number of developed countries with large home markets have an index value below 1.0 and rank relatively low on the list. The United States (which ranks 29) and Japan (47)- both major outward investors in absolute terms - invest little abroad in relation to the size of their economies. Given that size, one would expect considerably higher outward FDI. To the contrary, as shown in table 1, the Index indicates a slight decrease relative to their size.

A number of economies have seen an improvement in their outward FDI performance over the past 15 years. The fact that their FDI grew faster than their share of global GDP indicates that their enterprises are building ownership advantages rapidly and/or are increasingly choosing to exploit their advantages by establishing operations in foreign locations.

The World Investment Report 2004: The Shift Towards Services will be released on 22 September 2004, 17:00 GMT. For more information, see