located in the North, a percentage that has increased to 81 by 1991. By the beginning
of the 1990s the FDI stock in the US alone exceeded that of the entire developing
world, while the stock in the UK exceeded that of Asia (Koechlin, 1995). Since the
latter part of the 1990s the situation has changed somewhat, however. During the
period, overseas development assistance (ODA) for the South stood at around $50-55
billion, while FDI increased from $25 billion to around $200 billion (Holliday, et al.
2002). In 1997 the developing world received approximately 42 per cent of all FDI
(Loots, 2002). Most of it has been flowing to the Pacific Rim, Central Europe and
Central and South America, however, which makes FDI regionally biased, and
‘invested interests’ and ‘cooperating competition’ important factors in globalisation.
Part of the reason why most FDI still flows to the developed world while the bulk
of the remainder flows to a relatively small selection of developing countries in the
inner periphery is because comparative advantages remain a major factor in
international trade (Poon, 1997). Contrary to the past when comparative advantages
were largely interpreted in terms of the availability of natural endowments at a
particular location, it is increasingly becoming a strategically constructed
phenomenon through industrial targeting and networking (Vernon, 1996).
Transaction costs are another restricting factor in the dissemination of goods and
services, despite decreasing friction of distance, especially in the exchange of
information. It is still in the interest of transactors to move to areas where
agglomeration advantages exist (Parr, 2002) and where incidents of transactions are
globally higher (Storper and Scott, 1995) while transportation costs are kept low.
Intra-industry trade, i.e. the internalising of markets trough vertical integration, is the
third important factor that contributes to DFI convergence. A fourth factor is the
concentration of high quality labour in the North and in parts of the South. The
current high performance global economy requires high order thinking skills and the
North and the Pacific Rim have been able to attract significant amounts of FDI
because they have invested massively in education over many years. This has boosted
their economic performances, while the inward looking economic policies of
(especially) Sub-Saharan Africa and its low quality of labour have made it a high risk
area for investment (Marshal, 1995). Africa’s share in the world population, for
instance, increased from around 9.7 per cent in 1970 to almost 13 per cent in 2000, its
GDP declined from around 3.4 to 2.3 per cent, its exports from a little under 5 to 2 per
cent, and its FDI from 5.75 to 1 per cent over the same period (OECD, 2002). This is
a clear indication how disconnected Africa has become from the rest of the world
economy over the years.
However, the importance of FDI as a development factor should not be
overestimated. In reality it usually only forms a relatively small percentage of
domestic investment in developed countries, i.e. around 5 per cent from 1960 to 1991
(Koechlin, 1995). Also, FDI as a percentage of local investment overall does not
seem to be increasing dramatically over time. According to Bairoch (Beinart, 1997),
as a percentage of GDP, FDI of the developed world in 1914 and 1993 was roughly
on the same level, i.e. approximately 11 per cent, while FDI inflows of the world as a
whole stood at 2.2 per cent in 1998 (World Bank, 2000).
Mega cities of the South
As a result of the economic changes that have occurred across the globe over the
past five decades, major shifts in global urbanisation have also occurred over the