This project has been funded with support from the European Commission (226388-cp-1-2005-1-de-comenius-c21). This publication reflects the views only of the authors

2.2.1.2. Capital, Finance, FDI and MNCs

Scale and scope of the financial globalization before 1914 is really impressive. More than 60 government securities and shares of firms from almost whole continent and sectors were traded in European Stock Exchanges. London was undoubtedly the financial centre of the world but Berlin and Paris challenged her. During 30 years of classical gold-standard there were no restrictions on financial flows and cross-border financial flows reached incredible levels. Between 1880 and 1914 Britain exported 4 to 5% of her GDP on average. European countries following the footsteps of Britain started to export capital in the last quarter of 19^th century and in the 20^th century the USA merged into the first global capital market boom as a capital exporter. A similar boom in international finance has been experienced 30 years after the collapse of Bretton-Woods system that introduces fixed exchange rates and restrictions on capital account. Till the end of 1980s liberalization of capital flows has widened into developing countries. Global financial markets built up in 1990s. Nowadays financial globalization is a word that is used in daily life.
In 2006 foreign direct capital constituted half of net capital flows into developing countries. FDI inflows in 2006 increased by 38% and reached $1.31 trillion (second highest score after $1.41 trillion in 2000). This increase, although in different scales, has been experienced in three regions, namely developed, developing and Southeast Europe and the Commonwealth of Independent States (CIS) countries. FDI inflows to developed countries increased by 45% and reached $857 billion.
FDI stock increases each year as FDI inflows increase with the globalization process. While FDI stock in 1990 is estimated to be $1.78 trillion, as of the end of 2006 this figure is estimated to be $12 trillion.
Figure 3: FDI Inflows

Source: UNCTAD, 2007, p. 3.
The largest 5 non-financial MNCs of the world are General Electric (USA), Vodafone Group (United Kingdom), General Motors (USA), British Petroleum Company PLC (United Kingdom) and Royal Dutch/Shell Group (United Kingdom and Netherlands). In the first 100 MNCs there are 12 German, 2 Hong Kong, 2 Korean, 1 Mexican, 1 Malaysian and 1 Singapore enterprises but no enterprises from Turkey, Czech Republic or Lithuania. MNC that has investments in highest number of countries is the German Deutsche Post AG with investments in 103 countries.
As of 2004 there are 2,129; 9,225 and 42,753 foreign MNC affiliates in Turkey, Germany and China respectively. These affiliates create employment of 2.28 million and 24 million in Germany and China. On the contrary Germany has 22,997 affiliates all over the world. The total employment in the world that is created by foreign MNC affiliates is 21.52, 25.10 and 72.63 million in 1982, 1990 and 2006 respectively. The other side of the coin regarding employment is that MNCs’ foreign investments instead of domestic investments export employment. For example Germany creates an employment of 4.61 million abroad through her MNCs. That means Germany loses an employment of 2.33 million due to MNC type of production. This figure is 3.5 million in the USA and 3.71 million in Japan. While governments of the countries that make FDI take precautions against capital outflow, host countries attracting FDI use this capital in order to solve their unemployment problems.
The highest bilateral FDI relationships in the world are between United Kingdom- USA, Hong Kong-China, USA-United Kingdom, Japan-USA and Germany-USA (first country is the investor and second is the host country and ranking is done according to FDI inflows). The FDI stock in these countries is $1.13 trillion in 2005.
Lastly, countries may be ranked according to their FDI performances and potentials. Accordingly, China, Czech Republic, Lithuania, Hong Kong and United Kingdom have both high performance and potential; Germany, Turkey, Japan and USA have high potentials but low performances. Countries that have low potentials and performances are generally those from Africa.