Reinvested earinings as a component of FDI

Reinvested earnings represent an important component of foreign direct investment, but the managerial and policy implications of affiliate reinvestment gave been neglected in the international business literature, although they have receied attention in the economic literature on taxation. This article presents an analytical review of the determinants of reinvestment, paying particular attention to the role played by taxation. We consider reinvestmnt as a form of marginal investment, and discuss six determinants grouped under three headings, namely, factors encouraging reinvestment, factors encouraging the repatriation of earnings and the influence of agency considetations on the financial management of the TNC. We also discuss issues of measurement, and the empirical testability of our conceptual model of reinvestment. We think that a better heoritical and empirical understanding of sequential flowas of investment has great relevance for policies aimed at investment attraction, which have tended to focus on green field investment and have often failed to deliver the desired results in the past.