#64 Transnational Corporations and the Food Industry in Latin America: An Analysis of the Determinants of Investment and Divestment
By Christopher D. Scott
The aim of the paper is to provide an analysis of the determinants of direct foreign investment, and to a lesser degree divestment, by transnational corporations (TNCs) in the Latin American food industries since the 1960's. It was found that despite a decline in the region's share of global United States direct foreign investment (USDFI) in the food industries between 1966 and 1978, the nominal rate of return on this investment has consistently risen while its relative profitability also increased after 1974. The stability of profit rates on United States direct foreign investment in the Latin American food industry was also greater than anywhere else over this period.
Direct foreign investment and divestment in this industry by U.S.-based TNCs can be explained by a combination of trade and location theory, industrial organization theory and theories of the growth of the firm. However, a necessary condition for much of this corporate expansion abroad is to be found in certain specific historical developments within the domestic U.S. economy and food industry. In contrast, host government fiscal incentives for attracting direct foreign investment in the region's food industry were found to be of limited importance.
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