EFFECTIVE DEMAND, OUTWARD INVESTMENT AND THE (THEORY OF THE) TRANSNATIONAL CORPORATION: AN EMPRICAL INVESTIGATION

That demand‐side deficiencies can provide an inducement for outward investment by transnational corporations has never acquired much currency, despite its long history and the fact that existing theories ofter have implications supportive of it. Arguably a reason for this is that the idea has never been tested empirically. In this paper we provide the first such empirical test. First we critically survey and attempt to synthesize the mainstream microeconomic or supply‐side theories of the TNC. Then we examine the case for a demand‐side perspective, link this to the supply‐side and discuss some existing indirect evidence in support of this perspective. Finally we provide a direct econometric test of the demand‐side perspective, which provides clear support for it.