The internationalisation of Spanish firms through foreign direct investment

Notable among the various changes in the Spanish economy in recent decades has been the increase in Spanish firms’ outward foreign direct investment (FDI) flows from the second half of the nineties. This is indicative of the maturity of the process of ongoing internationalisation of Spanish firms which, after being heavily reliant on incoming foreign capital in the early stages of the external opening up of the Spanish economy, have rapidly and decisively boosted their international activity in the past decade. As a result, since the end of the nineties the Spanish economy as a whole has been a net exporter of FDI. In general, FDI is a complementary strategy to goods and services exports, providing for wider business opportunities and risk diversification, by reducing vulnerability to the specific conditions of a domestic or foreign market. Furthermore, the presence of emerging countries in the international arena is making foreign direct investment even more important as a channel for improving business efficiency by facilitating access to new markets and permitting the spatial fragmentation of production processes. That said, growth in firms’ international investment may have certain collateral effects, such as diverting funds that would otherwise have been available for domestic productive capital increases, or potential export replacement effects. In order to analyse the patterns and characteristics of Spain’s outflows of FDI, this article presents and analyses information on these flows provided by the Banco de España’s annual Balance of Payments statistics (prepared in accordance with the guidelines of the fifth edition of the IMF’s Balance of Payments Manual), with breakdowns by geographical area and sector of activity. These data, with the level of detail considered in this article, are relatively recent; accordingly, in their absence, information prepared by the Ministerio de Industria, Turismo y Comercio (Ministry of Industry, Tourism and Trade) based on the Foreign Investment Register (RIE) was used to conduct this type of analysis. Box 1 briefly describes the methodological and coverage differences between the two sources which account for discrepancies in the level of and, occasionally, the changes in the data. However, there is generally a high degree of similarity between the two statistics in relation to the main spatial and sectoral distribution patterns of Spain’s outward FDI. Following this introduction, the next section summarises the main theoretical references which analyse the determinants of FDI and multinationals’ location decisions. Next, the aggregate changes in Spain’s FDI are described and, subsequently, the main features of its geographical and sectoral distribution. Lastly, the conclusions drawn from this analysis are presented.