HOW IMPORTANT IS FOREIGN DIRECT-INVESTMENT

The degree of multinationality of an economy's production is determine d by the extent of production in other economies by domestically-owned firms, and by production located in the economy in question by foreig n-owned firms. In the absence of direct measures, international produc tion (that is, production under foreign ownership) is normally measure d at a national level by outward and inward foreign direct investment (FDI) stocks. Unfortunately, the existing practice of reporting FDI st ocks on a historical cost basis (i.e. book values) is unsatisfactory, because it does not take into account the age distribution of stocks, thus making accurate international comparisons of FDI stocks almost im possible (see e.g. Cantwell, 1984, 1992; Bellak and Cantwell, 1996). W e have re-estimated the FDI stocks of Japan, Germany, the US and the U K at replacement values using a perpetual inventory model (PIM). The r esults cast doubt on some of the conventional wisdoms about internatio nal production, derived from historic cost data.