As a percentage of GDIP, the increase was from a negligible proportion in 1987 to 2.4 per cent in 1999. lndividual M&A deals can be quite substantial.

Take the biggest cross-border deal until early 2000 -- the takeover of Mannesmann (Germany) by Vodafone AirTouch (United Kingdom): this nearly $200 billion dea] came to 6 per cent of the combined GDP of the two countries in 1999. It is not possible to determine precisely the share of cross-border M&As in FDI inflows. M&As can be financed locally or directly from international capital markets; neither is included in FDI data. FDI data are reported on a net basis, M&A data are not. Moreover, payments for M&As (including those involving privatisations) can be phased over several years.

It is, therefore, possible for the ratio of the value of cross-border M&As to total FDI flows -- for the world as a whole or for individual countries -- to be higher than 1. Taking the extreme case in which all crossborder M&As are financed by FDI (certainly incorrect for developed countries, but less so for developing countries), the share of total cross-border M&As in world FDI flows has increased from 52 per cent in 1987 to 8 per cent in 1999. This figure varies considerably between developed and developing countries. For the former, the ratio is higher, having risen from 62 per cent in 1987 to more than 100 per cent in 1999. For developing countries, the ratio is lower, but is also rising, with considerable variation among developing regions and countries. While these ratios do not show the exact share of FDI flows accounted for by M&As in any given year, they do suggest that M&As contribute an increasing share of FDI flows to all groups of countries. This makes it imperative for developing host countriesto understand the forces driving M&As and the impact they have on development.

The basis of concem is that M&As represent a change of ownership from domestic to foreign hands, while greenfield FDI rtpresents an addition to the capital stock. This leads to such worries as the extent to which M&As (when compared to greenfield FDI) bring resources to host countries that are needed for development; the denationalisation of domestic firms; employment reduction; loss of technological assets; crowding out of domestic firms and increased market concentration and its implication for competition.

Indeed, perhaps the most common concern about cross-border M&As -- in distinction to greenfield FDI -- is their impact on domestic competition.

The sheer size of many of the firms involved, and their large share of global markets, raise fears about growing international oligopolies and market power. Governments therefore increasingly realise that effective competition policy is vital, and a large number of countries have adopted (or are in the process of preparing) competition laws. If anything, this policy instrument will become more important as a global market for firms is emerging, leading to the consolidation of inustries on a global scale.

International production expands in scope and depth.

Regardless of whether the mode of entry into a foreign market is M&As or greenfield FDI, the outcome is still an increase in the extent of international production under the common governance of TNCs. International production involves a gamut of cross-border flows by TNCs. The principal ones are finance, trade and flows of know-how, personnel and technology. The usual way to measure these flows is by its financial element -- the value of FDI flows. This is an incomplete measure of the spread of international production; in fact, it does not even measure correctly the value of all investments undertaken abroad by TNCs (because some of them can be financed from local or international capital markets). However, FDI is the only aspect of international production on which comparable data are available at the country level, and this section focuses thereon.

Global FDI flows, as noted earlier, have continued to rise steadily. lnflows of FDI reached $865 billion worldwide in 1999, a new record. The current FDI boom is now in its seventh year (since 1993). It is expected to continue into the year 2000.

Equity capital accounted for 72 per cent of global FDI inflows and reinvested earnings for 8 per cent in 1998 (figure 1.8). This distribution has changed little over the past five years. Continuing last year's trend, FDI inflows to developed countries in 1999 rose faster than to other countries and set a new record of $636 billion. Most of this increase reflected cross-border M&As between firms based within the developed world.

Flows of FDI, both inward and outward, for the European Union and the United States were at record levels in 1999. For Japan, inward flows quadrupled to reach also a record high, but outflows declined slightly. In contrast to 1998, FDI flows to developing countries increased as well -- by 16 per cent, to a total of $208 billion in 1999. Africa (including South Africa) continued to attract small amounts of FDI flows, accounting only for 5 per cent of the developing country total (including South Africa).

FDI increased however in 1999, with Angola, Egypt, Nigeria and South Africa being major recipients in that year. FDI inflows to Latin America and the Caribbean (where privatisation is still a major magnet) increased by 23 per cent, to reach $90 billion. This increase meant that Latin America and the Caribbean had almost reached the amounts that developing Asia (including West Asia and Central Asia) had received that year, $106 billion, out of which $40 billion went to China alone; cross-border M&As influenced significantly the level of FDI flows in this region, in particular in the Republic of Korea.