¹ Hobson, J. A., Imperialism (Ann Arbor 1965)Google Scholar; Lenin, V. I., Imperialism, The Highest Stage of Capitalism (New York 1930)Google Scholar; Sweezy, Paul M., The Theory of Capitalist Development (London 1942)Google Scholar; Baran, Paul A., The Political Economy of Growth (New York 1957)Google Scholar; Baran, Paul A. and Sweezy, Paul M., Monopoly Capital (New York 1966).Google Scholar

² In their last work, Monopoly Capital, Baran and Sweezy suggested that none of these mediods could absorb surplus capital very effectively. On foreign investment, see ibid., 104–11.

³ It is by no means certain that the prices of all primary products would rise with the nationalization of operations at the production stage. Cf. Moran, , “New Deal or Raw Deal in Raw Materials,” Foreign Policy, No. 5 (Winter 1971–72).CrossRefGoogle Scholar

⁴ Deutsch, Karl W. and Eckstein, Alexander, “National Industrialization and the Declining Share of the International Economic Sector, 1890–1959,” World Politics, XIII (January 1961)Google Scholar; Heilbroner, Robert I., “Counter-revolutionary America,” in Howe, Irving, ed., A Dissenter's Guide to Foreign Policy (Garden City, N. Y. 1968)Google Scholar; Waltz, Kenneth N., “The Myth of National Interdependence,” in Kindleberger, Charles P., ed., The International Corporation (Cambridge, Mass. 1970)Google Scholar; Tucker, Robert, The Radical Left and American Foreign Policy (Baltimore 1970)Google Scholar; Miller, S. M., Bennett, Roy, and Alapatt, Cyril, “Does the U.S. Economy Require Imperialism?” Social Policy, 1 (September-October 1970).Google Scholar

⁵ Magdoff, Harry, The Age of Imperialism (New York 1969)Google Scholar, and “The Logic of Imperialism,” Social Policy, 1 (September-October 1970); Akerman, Frank, “Magdoff on Imperialism,” Public Policy, XIX (Summer 1971).Google Scholar

Since the end of the 1960's, total production of foreign firms controlled by U.S. corporations has been close to the total production of the Japanese economy, making mem third or fourth behind the U.S. and the U.S.S.R.

⁶ The most important body of this literature deals with the theory of the product cycle: Vernon, Raymond, “International Investment and International Trade in me Product Cycle,” Quarterly Journal of Economics, LXXX (May 1966)Google Scholar, and Sovereignty at Bay (New York 1971); Wells, Louis T. Jr, “Test of a Product Cycle Model of International Trade,” Quarterly Journal of Economics, LXXXIII (February 1969)Google Scholar, and International Trade: The Product Cycle Approach (Basic Books, forthcoming).

Related to this approach to the growth of the firm are Penrose, Edim T., The Theory of the Growth of the Firm (Oxford 1966)Google Scholar; Vernon, Raymond, “Organization as a Scale Factor in the Growth of Firms,” in Markham, J. W. and Papanek, G. F., eds., Industrial Organization & Economic Development (New York 1970).Google Scholar

On oligopoly behavior and the theory of foreign investment, see Hymer, Stephen H., “The International Operations of National Firms: A Study of Direct Foreign Investment,” unpub. Ph.D. thesis (MIT 1960)Google Scholar; Stephen Hymer and Robert Rowdiorn, “Multinational Corporations and International Oligopoly: The Non-American Challenge,” in Kindleberger (fn. 4); Caves, Richard, “International Corporations: The Industrial Economics of Foreign Investment,” Economica, New Series, XXXVIII, NO. 149.Google Scholar

This paper does not attempt to deal with the dynamics of foreign investment and oligopoly behavior in natural resource industries. For some approaches to this subject, see Moran, , El Cobre es Chileno—The Multinational Corporation and the Politics of Development: The Case of Copper in Chile (Harvard Center for International Affairs 1972)Google Scholar; Vernon, Sovereignty at Bay (see above); Tilton, John E., “The Choice of Trading Partners: An Analysis of International Trade in Aluminum, Bauxite, Copper, Lead, Manganese, Tin, and Zinc,” Yale Economic Essays, VI (Fall 1966).Google Scholar

There is also no attempt to look at the behavior of multinational manufacturing enterprises that are not based in the United States. Preliminary investigations suggest that there may have been systematic differences in their behavior related to the amount of instability and competition in the home market—although tbeir strategies may be converging with those of U.S. enterprises.

⁷ Williams, William A., The Tragedy of American Diplomacy (New York 1962).Google Scholar

⁸ Cf. Harry Johnson, “The Efficiency and Welfare Implications of the International Corporation,” in Kindleberger (fn. 4); Vernon, Raymond, “U.S. Controls on Foreign Direct Investments—a Reevaluation,” Financial Executives Research Foundation (April 1969).Google Scholar

⁹ Penrose (fn. 6); Vernon, “Organization as a Scale Factor in the Growth of Firms” (fn. 6).

¹⁰ Wilkins, Mira, The Emergence of Multinational Enterprise (Cambridge, Mass. 1970)Google Scholar; Vernon, Sovereignty at Bay (fn. 6); Vaupel, James W. and Curhan, Joan P., The Making of Multinational Enterprise (Boston 1969).Google Scholar

¹¹ Cf. Wilkins, (fn. 10), esp. chaps, IV, V, and X; Vernon (fn. 6), chap. 3 and tables 3–5.Google Scholar

¹² Wilkins, (fn. 10), 102–103.Google Scholar

¹³ Ibid., 65, 68, 212–13.

¹⁴ In addition to William A. Williams's well-known thesis (fn. 7), see supporting data in Wilkins (fn. 10), chap. IV.

¹⁵ Ibid., 75, 205.

¹⁶ The most comprehensive discussion of the key characteristics of foreign investors in the Harvard Business School sample of 187, in the Fortune 500, and in the U.S. Commerce Department statistics can be found in Vernon (fn. 6), chap. 1, and in Vaupel and Curhan (fn. 10), chap. 1.

Studies by Stobaugh and Hirsch (see fns. 17 and 18) of the petrochemical and electronics industries go further in relating foreign investment to rate of growth.

The argument is also made that U.S. foreign investors are the most sophisticated in managerial organization. Cf. Stopford, John M., “Growth and Organization Change in the Multinational Firm,” unpub. D.B.A. thesis (Harvard Business School 1968)Google Scholar; Fouraker, Lawrence E. and Stopford, John M., “Organizational Structure and Multinational Strategy,” Administrative Science Quarterly, XIII (June 1968).Google Scholar

¹⁷ Stobaugh, Robert B. Jr, “The Product Life Cycle, U.S. Exports, and International Investment,” unpub. D.B.A. diesis (Harvard Business School 1968).Google Scholar

¹⁸ Hirsch, Secv, Location of Industry and International Competitiveness (Oxford 1967)Google Scholar, and “The United States Electronics Industry in International Trade,” in Wells (fn. 6).

¹⁹ Hufbauer, G. C., Synthetic Materials and the Theory of International Trade (London 1965).Google Scholar

²⁰ Stobaugh, Robert, Torre, Jose de la, Hayes, Robert, Tucker, James, Moxon, Richard, Rodriguez, Rita, and others, U.S. Multinational Enterprises and the U.S. Economy, Harvard Business School report prepared for the U.S. Department of Commerce (January 1972).Google Scholar

²¹ The argument of this paper can be translated directly into profit-maximizing terms if one admits discontinuous opportunity costs to the firm and if, to the calculation of marginal return on investment, one adds a measure of the risk of loss to the enterprise if the foreign investment is not made.

²² U.S. Department of Commerce, Survey of Current Business, Foreign Investments 1965–66 (September 1966).Google Scholar

²³ All other things being equal, there should be a presumption that, when they get the chance, U.S. firms will declare more of their profits to be on foreign operations than at home, especially in the case of foreign investment in underdeveloped countries. The deferral feature of the U.S. foreign tax credit in effect provides foreign subsidiaries of American businesses with an interest-free loan amounting to the U.S. tax liability of unremitted profits. Also, in less developed countries, the absence of a “grossing-up” requirement means that taxes paid to a host government relieve a company of much more of its global tax liability than taxes paid to the U.S. Government.

²⁴ Caves (fn. 6). Caves's finding that direct foreign investment does not tend to equalize rates of return in any country between industry sectors is consistent with and supportive of the model of corporate growth advanced here.

How firms have evaluated the choice between diversifying at home and expanding abroad is not clearly understood. It appears that considerations of accounting rather than of economics have been responsible for many of the conglomerate mergers in die United States. And, in any case, domestic diversification has been seen as an aid to foreign expansion rather than as an alternative in the strategy of some of the largest conglomerates, such as ITT or Litton.

²⁵ Hirsch (fn. 18).

²⁶ Wells, Q.J.E. (fn. 6).

²⁷ Sovereignty at Bay (fn. 6), chap. 3.

²⁸ Council for America, Latin, The Elects of United States and Other Foreign Investment in Latin America (New York 1969).Google Scholar

²⁹ The figures on exports of U.S. foreign manufacturing subsidiaries for 1968 are cited in Stobaugh, (fn. 20), 28.Google Scholar Comparisons with export and import figures for the countries in the text are taken from International Financial Statistics of the International Monetary Fund and the Statistical Abstract of the United States.

³⁰ For those who favor a behavioral model of the firm, it can be argued that managers of die fastest growing divisions within a large diversified corporation can ally themselves with managers of research and development divisions and with those production managers who want access to cheap foreign inputs against the managers of “mature” divisions who might press for protection.