PART ONE
END OF THE DOWNTURN
CHAPTER I. GLOBAL TRENDS: FDI FLOWS RESUME GROWTH...................... 3
A. Signs of recovery .................................................. 3
1. Overall analysis.................................................... 4
a. FDI inflows and outflows ........................................... 4
b. Modes of FDI entry ................................................. 9
c. Components of FDI flows ............................................ 10
d. Factors contributing to the recovery ............................... 12
e. The importance of TNC activities in the world economy .............. 13
2. The largest TNCs ................................................... 15
a. The world’s top 100 TNCs .......................................... 15
b. The top 50 TNCs from developing countries .......................... 17
c. Transnationality of the top TNCs ................................... 17
d. The top 10 TNCs from South-East Europe and the CIS ................. 19
e. The world’s top 50 financial TNCs.................................. 19
3. FDI performance and potential....................................... 20
B. Policy development ................................................. 22
1. National policy changes ............................................ 22
2. International investment agreements ................................ 23
a. Bilateral investment treaties ...................................... 24
b. Double taxation treaties ........................................... 28
c. Other international agreements ..................................... 28
d. International investment disputes .................................. 30
C. Prospects: further FDI growth expected ............................. 31
 
CHAPTER II. REGIONAL TRENDS: DEVELOPING REGIONS
LEAD RISE IN FDI....................................................... 39
Introduction .......................................................... 39
A. Developing countries ............................................... 40
1. Africa: FDI inflows remain buoyant, sustained by investments in primary production ......... 40
a. Trends: FDI continues to flow, mostly to natural resources ....................................................... 40
b. Policy developments: efforts to stabilize the environment for FDI inflows ............................ 43
c. Prospects: cautiously positive ..................................... 48
2. Asia and Oceania: inflows at a record high ......................... 50
a. Trends: strong growth in FDI flows ................................. 51
b. Policy developments: favourable measures continue .................. 58
c. Prospects: increasingly bright ..................................... 60
3. Latin America and the Caribbean: FDI inflows rebound ............... 62
a. Trends: a resurgence of FDI inflows in many countries .............. 62
b. Policy developments: some changes in the area of natural resources .................... 69
c. Prospects: growing opportunities ................................... 73
B. South-East Europe and CIS: FDI rises for the fourth year in a row ...........................74
1. Trends: FDI inflows sharply up ...................................................................................74
2. Policy developments: diversity in policy approaches .................................................. 77
3. Prospects: continuing growth .........................................................................................78
C. Developed countries: uneven performance ................................................................... 80
1. Trends and developments: a turnaround in many countries ........................................... 81
2. Policy developments: diverging tendencies ..................................................................... 89
3. Prospects: positive overall ...............................................................................................89
PART TWO
R&D INTERNATIONALIZATION AND DEVELOPMENT
INTRODUCTION.................................................................................................... 99
CHAPTER III. INNOVATION, R&D AND DEVELOPMENT ....................... 101
A. Innovation matters for all countries ............................................................................ 101
B. Global R&D trends ....................................................................................................... 105
1. R&D is geographically concentrated ..............................................................................105
2. R&D by industry ..............................................................................................................107
3. Capability needs and benefits differ across activities .................................................... 109
C. The innovation capability gap ...................................................................................... 111
1. Measuring innovation capabilities ................................................................................111
2. The UNCTAD Innovation Capability Index ......................................................................113
D. Conclusion................................................................................................................... 117
CHAPTER IV. R&D BY TNCS AND DEVELOPING COUNTRIES ............. 119
A. TNCs are dominant R&D players ................................................................................ 119
B. R&D by TNCs is internationalizing ............................................................................. 121
1. A growing share of TNCs’ R&D is performed abroad ................................................122
2. The growing role of foreign affiliates in host-country R&D ........................................... 125
3. Growing use of strategic alliances .................................................................................126
C. The emergence of developing economies as locations for TNCs’ R&D .....................126
1. TNCs are expanding R&D to developing locations ........................................................127
2. Foreign affiliates in patenting by developing economies ...............................................134
D. Features of R&D undertaken in developing, South-East
European and CIS markets .................................... ........... ........... ........... ........... ........... 135
1. Industry composition of R&D by TNCs in developing countries .......................................135
2. Types of R&D ...................................................................................................................137
a. Asia and Oceania: dynamic trends ..................................................................................139
b. Latin America and the Caribbean: limited R&D but with potential ....................................143
c. Africa: generally marginal in R&D by TNCs .......................................................................147
d. A comparison with economies in transition .......................................................................148
E. Developing-country TNCs are also expanding R&D abroad.......................................150
F. Prospects....................................................................................................................151
CHAPTER V. DRIVERS AND DETERMINANTS .......................................................157
A. What drives the internationalization of R&D? ...........................................................157
B. Host-country determinants of R&D location ................................................................160
C. How to internationalize R&D ....................................................................................... 168
1. R&D outsourcing is growing ........................................................................................168
2. Greenfield versus acquisition .......................................................................................170
Annex to Chapter V. The rise of chip design in Asia: a case study ................................173
1. Pull factors ..................................................................................................................173
2. Policy factors ...............................................................................................................174
3. Push factors ................................................................................................................174
a. Changes in design methodology and organization ...................................................... 174
b. More outsourcing and multiple design interfaces .........................................................175
c. Changing skill requirements .........................................................................................176
4. Enabling factors .........................................................................................................176
CHAPTER VI. DEVELOPMENT IMPLICATIONS....................................................179
A. New development opportunities in the making ............................................................179
B. Implications for host countries ...................................................................................... 181
1. Effects on the structure and performance of an NIS .................................................181
2. Human resource implications.........................................................................................184
3. Knowledge spillovers from R&D by TNCs .....................................................................185
4. Contributions to industrial upgrading ............................................................................189
5. Potential concerns related to R&D internationalization ...............................................190
C. Implications for home countries .................................................................................. 193
1. Improved overall R&D efficiency .................................................................................193
2. Reverse technology transfer implications ....................................................................194
3. Market expansion implications.......................................................................................194
4. Home country concerns ...............................................................................................195
D. Conclusions ...............................................................................................................197
CHAPTER VII. THE ROLE OF NATIONAL POLICIES .......................................... ........... 201
A. Coherent policies and institutions make a difference .................................................201
B. Strengthening the institutional framework for innovation .........................................203
1. Fostering human resources .........................................................................................203
a. Development of skilled human resources .....................................................................203
b. Importing human resources ........................................................................................204
2. The role of research capabilities in the public sector ..................................................206
3. Policies related to intellectual property .....................................................................209
4. Competition policy and innovation ...........................................................................210
C. Promotion of R&D-related FDI ................................................................................ 212
1. The role of investment promotion agencies ............................................................212
2. Performance requirements .....................................................................................214
3. The use of R&D incentives is expanding ................................................................216
4. Using science parks as attractors ...........................................................................218
D. Industry-specific policies to enhance the benefits of FDI in R&D ............................219
E. The role of home countries........................................................................................220
F. Concluding remarks .................................................................................................222
CHAPTER VIII. THE INTERNATIONAL FRAMEWORK ...................................... ...........227
A. International investment agreements .....................................................................227
1. Entry and establishment ........................................................................................227
2. Performance requirements ....................................................................................229
3. Incentives...............................................................................................................230
4. Key personnel .......................................................................................................231
5. General protection of FDI in R&D..........................................................................231
6. Home-country measures and corporate social responsibility ..............................232
B. International rules relating to IPRs .....................................................................233
C. International cooperation in R&D.......................................................................235
REFERENCES ......................................................................................................239
SELECTED UNCTAD PUBLICATIONS ON TNCs AND FDI ................................... 329
QUESTIONNAIRE ...................................................................................................333