1. See, for example, Vernon, R., Sovereignty at Bay (New York: Basic Books, 1971)Google Scholar; Hymer, S., "The Multinational Corporation and the Law of Uneven Development," in Bhagwati, J., ed., Economics and World Order (New York: Macmillan, 1972)Google Scholar; Caves, R., "International Corporations: The Industrial Economics of Foreign Investment," Economica, Vol. 38, No. 149 (September 1971), pp. 1-27CrossRefGoogle Scholar.

2. The most serious attempt to formulate a consistent policy for foreign investment is by a group of Latin American countries known as the "Andean Group."

3. For a discussion of direct investment and other forms of international capital movements, see Kindleberger, C. P., American Business Abroad (New Haven: Yale University Press, 1969)Google Scholar.

4. The oil industry has received considerable attention elsewhere. See, for example, Bartsch, W. H., "The Impact of the Oil Industry on the Economy of Iran," in Mikesell, R. F., ed., Foreign Investment in the Petroleum and Mineral Industries: Case Studies on Investor-Host Country Relations (Baltimore: Johns Hopkins Press, 1971)Google Scholar, or Elwell-Sutton, L. P., Persian Oil: A Study in Power Politics (London: Lawrence, 1955)Google Scholar.

5. For instance, foreign rug merchants in some cases had their own factories, but mainly they relied on domestic suppliers. See Edwards, A. G., The Persian Carpet (New York: Humanities Press, 1967)Google Scholar.

6. For an interesting account of some of these developments, see McDaniel, R. A., "Economic Change and Economic Resiliency in Nineteenth Century Persia," Iranian Studies, Vol. IV, No. 1 (Winter 1971), pp. 36-49Google Scholar.

7. For a detailed account of the British-Russian rivalry in Iran during this period and the various attempts to obtain concessions by European promoters, mainly Russian and British, see Kazemzadeh, F., Russia and Britain in Persia, 1864-1914: A Study in Imperialism (New Haven: Yale University Press, 1968)Google Scholar, especially Chapters 2-5.

8. The events connected with this concession are analyzed in Lambton, A. K. S., "The Tobacco Regie: Prelude to Revolution," Studia Islamica, Vol. 22 (Autumn 1965), pp. 119-157, and Vol. 23 (Winter 1966), pp. 71-90Google Scholar; F. Kazemzadeh, op. cit., Chapter 4; Keddie, N. R., Religion and Rebellion in Iran: The Tobacco Protest of 1891-1892 (London: Athlone Press, 1966)Google Scholar.

9. For a list of Russian and British concessions in Iran, see Issawi, C., The Economic History of Iran, 1800- 1914 (Chicago: University of Chicago Press, 1971), pp. 358-361Google Scholar.

10. See also Bharier, J., Economic Development in Iran, 1900-1970 (London: Oxford University Press, 1970), p. 170Google Scholar.

11. For an account of the nationalization of the oil industry, see L. P. Elwell-Sutton, op. cit., or Fatemi, N. S., Oil Diplomacy: Powder Keg in Iran (New York: Whittier Books, 1954)Google Scholar.

12. For the text of the Law and subsequent regulations for its implementation, see Bank Markazi Iran, Investors' Guide to Iran (Teheran: 1969). A legal analysis of the Law can be found in Westberg, John, "Foreign Investment in Iran: A Short Analysis of the Law for Attraction and Protection of Foreign Investment in Iran," Business Lawyer, Vol. 24 (July 1969), pp. 1263-1273Google Scholar.

13. Since then the Exxon Corporation has invested in another lubricating oil plant.

14. It is now believed by most economists that the actual transfer of capital is secondary to other considerations in a firm's decision to invest overseas. See S. Hymer, "The International Operations of National Firms: A Study of Direct Investment," unpublished Ph.D. dissertation, Massachusetts Institute of Technology, 1960; also, C. P. Kindleberger, op. cit., Chapter 1.

15. An important exception has been investments in the pharmaceutical industry, where majority control or wholly-owned subsidiaries have been allowed. In the past few years, the government has pressured such companies to find Iranian partners or increase their share.

16. An interesting case arose soon after the passage of the Law. Unilever wanted to invest in the manufacturing of vegetable oil and soap in Iran but was refused a license after a handful of local producers of these commodities complained that foreign competition would ruin them. This information was supplied to one of the authors by a person involved in the negotiations with the government.

17. Note that all the investment in the oil industry is also excluded.

18. In a United Nations' Industrial Development Organization (UNIDO) study of foreign investment in Iran, the author reports that some shares held nominally by Iranians were in fact owned and controlled by foreigners. See S. Lall, Balance of Payments and Income Effects of Private Foreign Investment in Manufacturing: Case Studies of India and Iran (Geneva: 1972). This was to evade government pressure to get majority shareholding for Iranians.

19. For an analysis of the second and the third development plans and the economic policy of the government during this period, see Baldwin, G., Planning and Economic Development in Iran (Baltimore: Johns Hopkins University Press, 1967)Google Scholar.

20. Of the 14 financial institutions, 11 appear (or are subsidiaries of firms) in Fortune's lists of 50 largest commercial banks in the U.S. and 50 largest commercial banks outside the U.S., while 3 out of 4 manufacturing firms are listed in Fortune's 300 largest industrials outside the U.S. There have been some changes in the foreign ownership of shares in the bank. Notably, Lazard Frères & Co., which was one of the original sponsors, no longer owns stocks in the bank, while two large Japanese banks became shareholders in 1972. This latter development is significant in the light of Japan's rising industrial investment in Iran.

21. See Daftari, F., "The Balance of Payments Deficit and the Problem of Inflation in Iran, 1955-1962," Iranian Studies, Vol. V, No. 1 (Winter 1972), pp. 2-241CrossRefGoogle Scholar

22. The oil revenue figures do not include purchase of foreign exchange from the oil companies. The growth rate given here is an approximate figure because of inconsistencies in the GNP data provided by the Bank Markazi Iran. See Annual Reports of Bank Markazi Iran for 1349 and 1350.

23. See International Bank for Reconstruction and Development, Industrial Policies and Priorities: Iran, Vol. IV (Washington: 1971), Tables 38, 39, and 40. This report provides a detailed account of the industrial policies of the Iranian government. See also, Abromovic, D., "Industrialization of Iran: The records, the problems and the prospect," Taḥqīqāt-e Eqteṣādī, Vol. VII, No. 18 (Spring 1970), pp. 14-47Google Scholar.

24. IBRD, op. cit., Annex A, Table 4.

25. The large U.S. investment in 1348 (1969/70) was mainly in petrochemicals and a large portion of it has since been taken over by the National Iranian Oil Company.

26. Rowthorn and Hymer have argued that what J. J. Servan- Scheiber has called "The American Challenge" should rightly be labelled "the Non-American Challenge." They maintain that much of America's investment in Europe should be considered as defensive investments on the part of American corporations because European corporations' investments in the rest of the world had changed the balance of power against the U.S. See Hymer, S. and Rowthorn, R., "Multinational Corporations and International Oligopoly: The Non-American Challenge," in Kindleberger, C. P., ed., The International Corporation (Cambridge: M.I.T. Press, 1970)Google Scholar.

27. This publication is roughly comparable to Fortune's list of top U.S. corporations. We have used this list in preference to Fortune's list of top corporations outside the U.S. because the latter is too limited and excludes many of the large multinational corporations.

28. Information on foreign investors in these two countries was obtained from Foreign Invested Enterprises in Taiwan, Republic of China (Taipei: Industrial Development and Investment Centre, 1972), and Total Foreign Equity and Loan Funds Authorized for Projects Approved under the Foreign Capital Investment Law Since 1962, Investment Promotion Branch TID, USAID/ Korea, no date (ca. 1972).

29. No satisfactory evaluation of the cost and benefits of foreign investment is possible without a specification of alternatives. In the final analysis the choice among alternatives is often a political one.

30. Bank Markazi Iran publishes a series on investment in machinery and equipment, and the Ministry of Economy provides some data on industrial investment. Neither of these series, however, can be considered to be accurate.

31. S. Lall, op. cit., p. 119. This study also attempts to arrive at a quantitative measure of the balance of payments effect of foreign investment in Iran. Another recent study in Iran has found extensive evidence of overpricing of purchases from parent companies. See G. Salehkhou, "Commercialization of Technology in Developing Countries with Special Reference to the Process of Technology Transfer to Iran," Ph.D. dissertation in progress, The New School for Social Research.

32. See IMDBI, Annual Report for 1350 (1971/72).

33. In the license application for the importation of capital, there is a small section requiring information on the number of foreign technicians to be employed and the proposed training of Iranian personnel. In another section on know-how and royalties, the only questions asked concerns royalties and technical fees.

34. It is of course an illusion to think that the mere ownership of equity capital is an incentive for a foreign partner to help run an enterprise efficiently. A foreign parent firm can make its profits through overpricing of raw material supplies or overcharging for the capital equipment. Such practices are common in Iran. A number of foreign machinery suppliers have invested in joint ventures: General Glass Equipment Co.'s holding in S. S. Shisheh Ghazvin and Salzgitter Machinen A. G.'s investment in S. S. Ghand Kermanshah may be cited as examples. Reference to tied purchase agreements is given in footnote 31.

35. This is also true of some manufactured products which are produced by domestic firms and is the result of the import substitution policies of the government.

36. See R. Bildner, "Strategies and Effects of Multinational Corporations in Iran and Yugoslavia," unpublished Scholar of the House Essay, Yale University, 1973

37. The government has acknowledged the existence of this situation. Since 1970 the Ministry of Economy requires that in every new project either the value added should be greater than 35 percent or the local content of the final product to be more than 65 percent. Because it is not specified whether domestic or world prices are to be used in the calculation, this requirement may be easily bypassed.

38. The above description is based on interviews with five joint-venture firms in Iran. For a more extensive discussion of these questions, see R. Bildner, op. cit., Chapter 6.

39. In fact, it is this ill-defined managerial know-how which, in the minds of Iran's policymakers, tips the balance in favor of direct investment as opposed to other channels for obtaining technology. However, recently, there has been some disillusionment with the "foreign manager." It is argued that because of lack of familiarity with local conditions, foreigners are not always the best managers. See Rezai, A., "The Role of Capital and Foreign Investors in Iran's Economy," Journal of the Chamber of Commerce, Industry and Mines of Iran, Vol. 4, No. 2 (Ordibehesht 1352), pp. 88-96.Google Scholar

40. See Proceedings of Iran Investment Conference, Teheran, May 18-20, 1970 (New York: distributed by Chase Manhattan Bank, ca. 1971).

41. Some influential policy makers believe that once the first plant is physically located in Iran, the required, domestic technological capability is more or less automatically created. See speech by A. Kheradjou in the Proceedings of Iran Investment Conference, op. cit. Note that fifteen years after the establishment of the first tire factory in Iran and after several years of production by three tire firms, when a fourth company was recently set up, it still had to seek a foreign partner.

42. It was also argued that large-scale farming would be more economical in the use of water. It is hard to see, however, how subsidized water encourages economy in its use.

43. Originally these were to be situated on land below dams to be assured of regular and adequate water. In 1968 an act of Parliament put 400,000 hectares of such land at the disposal of the Ministry of Water and Power to lease out on long-term basis.

44. For a discussion and evaluation of the government strategies for agricultural development, especially agro-industrial projects, see International Labour Office, Employment and Income Policies for Iran (Geneva: 1972), Vol. B, Appendix D.

45. The role of multinational firms in the promotion of manufactured exports is discussed in G. K. Helleiner, "Manufactured Exports from Less Developed Countries and Multinational Firms," The Economic Journal, Vol. 83, No. 329 (March 1973), pp. 21-42, and Cohen, B. I., "Comparative Behavior of Foreign and Domestic Firms," Review of Economics and Statistics, Vol. 55, No. 2 (May 1973), pp. 190-197CrossRefGoogle Scholar.

46. See S. Lall, op. cit., p. 116; and R. Bildner, op. cit., Chapter 4.

47. See G. Salehkhou, op. cit.

48. See, for example, The Proceedings of the Iran Investment Conference, op. cit.

49. International Bank for Reconstruction and Development, Industrial Policies and Priorities: Iran (Washington: 1972), p. 36.

50. In the past decade or so, partnerships with foreign firms have also enabled a number of persons with political influence to join the rank of "industrial entrepreneurs."

51. Since 1339 (1960), there had been no foreign investment in banking except for one instance for which it was argued that the foreign partner's connection would allow penetration into the Persian Gulf's lucrative market. Two of the four banks that have been established recently have foreign partners.

52. For an analysis of the likely consequences of multinational corporations‘ expansion, see S. Hymer, "The Multinational Corporation and the Law of Uneven Development," in J. Bhagwati, ed., op. cit.