This trend is seen as having been facilitated by changes in technology. To start with, the revolution in transport and communications has reduced costs and increased the ease of communication so substantially that: (i) managerial control of internationally dispersed capacity has become easier; and (ii) the share of transport costs (for inputs purchased and outputs sold) in total costs has fallen dramatically in the case of many commodities. Secondly, changes in technology have in many industries segmented production processes, so that individual components of the process can be undertaken independent of each other at diverse sites. This permits firms to relocate particular (say, labour-intensive) segments of even technology-intensive production processes to alternative sites depending on their characteristics. Add to all this the fact that over the last two decades or more there has been a rapid dismantling of protective regimes and relaxation of regulations on foreign investors across the globe, and the basis for a significant change in the character of foreign investment should be clear. After allowing for national peculiarities and variations in political structures, any production site world-wide is becoming a potential site for production for world markets. The individual firm is detached from dependence on home country resources and has the opportunity to locate itself in environments where it can overcome the disadvantages stemming from specific macroeconomic developments such as appreciating exchange rates or microeconomic features like high wage levels, and substantially enhance its international competitiveness.
 
The BEA evidence, however, does not tally with this view that the expansion of multinationals would be accompanied by a tendency where growth in the periphery would be at the expense of presence in the metropolis. As already mentioned, the acceleration in expansion of MNC operations has been as true of the parent firms as of their MOFAs. This is true of both gross product and of employment. Further, there has been only one short span of time, 1989-94 when employment growth in US MNC parents was marginally negative. And these were years when growth in the US and worldwide had slowed, suggesting that employment movements during those years were influenced more by macroeconomic trends than by firm-level strategies.
 
Overall, the presence of parents in the global operations of MNCs still remains strong. As Chart 3 shows, the share of MNC parents in the worldwide gross product of US MNCs has remained more or less constant during the years 1989-99. This is true in the case of all industries in which MNCs participated, and of manufacturing, finance, insurance and real estate (excluding depository institutions). It is only in services that there has been a significant decline in parent share of gross product during the latter half of the 1990s. This persisting presence of parents in the economic activity of US MNCs, has also meant that the contribution of US parent firms to US GDP has also remained relatively constant during the period 1989-99 (Chart 4). Whether relocation occurred or not, the parents of US multinationals were making a significant and persisting contribution to overall US economic activity.
Chart 3 >> Chart 4 >>

However, there are two confusing aspects to these trends. Another way of assessing the impact of MNC operations is to examine the contribution of MNC parents and affiliates to parent and host country GDP. Chart 4, which examines the contribution of US parents to US gross product over a longer period of time suggests that there was a sharp reduction (6 percentage points in ‘all industries’ and 8 percentage points in the case of manufacturing) in the contribution of US parents to US MNCs GDP between 1982 and 1989, followed by stability in that contribution thereafter. Thus, if at all the relocation argument is supported by the gross product figures, it appears to be during the early years of globalisation.
 
It could of course be argued that this exercise, which requires comparison of figures from the BEA’s benchmark surveys of US direct foreign investment abroad and its National Income and Product Accounts, could be fraught with problems. However, the BEA itself has in the past attempted to adjust aggregate gross product figures to make them more comparable with the FDI figures. For improved comparability with U.S.-parent gross product, GDP of all private U.S. businesses was adjusted to remove from the total categories not applicable to non-bank U.S. parents— specifically, GDP of depository institutions; imputed rental income of owner-occupied farm and non-farm housing; and rental income of persons. The results yielded by this comparison of adjusted figures provided in Chart 5 tallies with the view supported by Chart 4 that any loss of production due to relocation occurred, if at all, during the early years of globalisation and not during its peak years in the 1990s.
Chart 5 >>