No. 243 - Foreign direct investment and multinational firms

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by Alessandro Borin and Riccardo Cristadoro October 2014

Since the early 1990s internationalization has moved forward very rapidly. With the reorganization of production processes on a global scale, the average growth rate of foreign direct investment (FDI) has exceeded that of GDP and trade, and its geographical and sectoral distribution has changed. In 2012, for the first time FDI flows to developing countries outpaced those to developed countries. Italy lags behind as a destination for FDI inflows and also as an originator of FDI outflows. The expansion of Italian multinationals in the '90s was largely driven by investment in traditional industries and in Eastern European economies. During the last decade a larger share of Italian FDI has been directed towards the most dynamic markets and innovative sectors. Italy’s industrial structure, which largely consists of small firms, is a factor in Italy’s delay in pursuing stable internationalization strategies. Compared with Germany and France, Italian firms show a significantly higher propensity to make use of arm's length and sub-contracting agreements rather than establishing production facilities abroad.

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