The underlying thesis of this chapter is that changes in the international direct investment position of a country are a reflection of changes in the international competitiveness of that country's firms, and the locational attractions of that country as a production base both for its own and foreign-based MNEs. An increase in outward direct investment may occur either because domestic MNEs have bettered their competitive position, vis-a-vis firms of other nationalities, or because the locational attractions of producing abroad relative to those in the home country have improved. On the other hand, an increase in inward investment by foreign MNEs could mean that they were penetrating a country's domestic markets at the expense of indigenous competitors, or that the domestic economic environment for production has become more attractive relative to that offered by other countries. We accept, straight away, that international investment flows are not the same thing as foreign capital expenditure on the part of MNEs, which, in the context of this chapter, is our primary interest. Net asset growth by MNEs may be financed from domestic or foreign sources; by the same token, a rise in outward or inward investment might be at the expense of domestic financing and this need not affect international capital formation.