The Investment Development Path of Brazil

Abstract: The theory of the Investment Development Path (IDP) by John H. Dunning suggests that as a country develops, its composition of inward and outward foreign direct investment change both regarding to quantity and type of investment. The theory consists of 5 stages a country passes as its OLI-advantages develop. In this paper we have applied the theory of the IDP on the case of Brazil in order to evaluate if the country has developed consistently with the theoretical framework. To appoint the position of Brazil on the IDP we use data from United Nations Conference on Trade and Development as well as from the Central Bank of Brazil. We find that though the shape of the Brazilian IDP correlates with the conceptual IDP, the underlying factors causing the shifts in net outward investment (outward direct investment – inward direct investment) are not due to development of the country´s OLI-advantages but initially caused by economic reforms and later by global business cycles. Brazil has been a late outward investor which often is the case for large countries. Most of Brazilian outward direct investment has been in the form of M&As by transnational Brazilian companies active in the primary sector. We conclude that the theory of the IDP to very limited extent explains the development of Brazil.