An Overview of the Key Theories of Foreign Direct Investment: The Way Forward
DOI:
https://doi.org/10.14738/assrj.512.5741Keywords:
Theories, Foreign Direct Investment, FDIAbstract
This paper discusses eight of the numerous theories that seek to explain why and when foreign direct investment takes place. In addition, general criteria for a good theory were provided as suggested. The main finding is that there is no single, generally accepted theory that currently satisfies all the listed criteria for a good theory or gives a satisfactory explanation about the determinants of FDI. The paper argues that a good theory of FDI should be able to explain simultaneously exporting as well as portfolio and foreign direct investments for these are basically similar activities that reflect a continuum of increasing level of involvement of the firm in international operations. The authors advise that a good starting point in developing a theory of FDI the theory of economic advantage which is static and more applicable to natural advantages such as minerals and agriculture. On the other hand, the Product Life Cycle Theory is dynamic and suggests that comparative advantage shifts from one nation to another as a product matures. Therefore, the PLC may be a good starting point in developing a theory of FDI flows associated with products that depend mainly on acquired advantages such as manufactured goods. The PLC may therefore be seen as taking over where the classical comparative advantage theory fails to explain trade and investment.
References
Agarwal, G. P., Gubitz, A., & Nunnenkamp, P. (1991). Foreign direct Investment in Developing Countries: The case of Germany. Tbingen, Germany: J.C.B. Mohr.
Aliber, R. Z. (1970). A Theory of Direct Foreign Investment. In C. P. Kindleberger, The International Corporation, Assymposium. Combrite MA: MIT Press.
Buckley, P. J., & Casson, M. (1976). The Future of the Multinational Enterprises. London: Macmillan.
Dinkar, N., & Rahul, C. N. (2014). A selective review of foreign direct investment theories. Asia-Pacific Research and Training Network on Trade, 2-26.
Dunning, J. F. (1977). Trade location of economic activity and the MNE: A search of an eclectic approach. (B. Ohlin, P. O. Hesselborn, & P. J. Wijkman, Eds.) The International Allocation of Economic Activity.
Dunning, J. H., & Lundan, S. M. (2008). Multinational Enterprises and The Global Economy. Cheltenham: Edward Elgar Publishing.
Erdal, F., & Tatoglu, E. (2002). Locational Determinants of Foreign Direct Investment in an Emerging Market Economy: Evidence from Turkey. Multinational Business Review, 10(1).
Gichamo Tesfanesh Zekiwos. (2012). Determinants of Foreign Direct Investment Inflows to Sub-Saharan Africa: a panel data analysis. Masters Thesis in Economics, Sordetorns University, 1-42.
Guimaraes, P., & Figueiredo, O. (2000). Agglomeration and the Location of Foreign Direct Investment in Portugal. Journal of Urban Economics, 47 , 115-135.
Hymer, S. H. (1976). The International Operations of National Firms: A Study of Direct Foreign Investment. PhD Dissertation. Published posthumously. Cambridge, Mass, Mass: The MIT Press, 1976.
Ichiro, A. (1991). Overview: Japan's direct investment in the EC. (M. Yoshitomi, I. Akimune, T. Kitamura, G. Kume, K. Matsumoto, & K. Totsuka, Eds.) Japanese Direct Invesment in Europe.
International Monetary Fund. (1993). Balance of Payments Manual (Fifth Edition (BPM5 ed.). Washington, D.C.
Investopedia. (2018). Foreign Direct Investment - FDI. Retrieved July 25, 2018, from https://www.investopedia.com/terms/f/fdi.asp
Knickerbocker, F. T. (1973). Oligopolistic reaction and multinational enterprise. Boston: Harvard University School of Business Administration.
Krugman, P. (1991). Increasing Returns and Economic Geography. Journal of Political Economy, 99(3).
Kumar, K. (1981). Introduction. (K. Kumar, & M. G. Mcleod, Eds.) Multinationals from Developing countries.
Lall, S. (1976). Financial and profit performance of MNCs in developing countries: Some evidence from an Indian and Columbian sample. World Development, Elsevier, 4(9 September), 713-724.
letto-Gilles, G. (1992). International Production. Cambridge: Polity Press.
Mariotti, S., & Piscitello, L. (1995). Information costs and location of FDIs within the host country: Empirical evidence from Italy. Journal of International Business Studies, 26, 815-841.
Marshall, A. (1898). Principles of Economics (Vol. 1). London: Macmillan.
Mittelstaedt, R. (1977). Teaching Consumer Behavior: an Overview. (D. P. William, Ed.) Advances in Consumer Research, 4, pp. 266-267.
Nayyar, R. (2014). Traditional and Modern Theories of FDI. International Journal of Business and Management Invention, 3(6), 23-26.
Ndiaye, G., & Xu, H. (2016). Impact of Foreign Direct Investment (FDI) on Economic Growth in WAEMU from 1990 to 2012. International Journal of Financial Research, 7 (4), 33-43.
Robock, S. H., & Simmonds, K. (1983). International Business and Multinational Enterprises. Illinois, United States.: Richard D. Irwin.
Stewart, T. (1994). Trade Related Investement Measures (Vol. GATT Uruguay Round: A Negotiating History). Boston: Kluver.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2).
Wacker, J. G. (1998). A definition of theory: research guidelines for different theory-building research methods in operations management. Journal of Operations Management, 361–385.
Wells, L. T. (1968). A product life cycle for international trade? Journal of Marketing, 33(July), 1-6.
Zaltman , G., & Wallendorf, M. (1979). Consumer Behaviour. New York: John Wiley and Sons.
Downloads
Published
How to Cite
Issue
Section
License
Authors wishing to include figures, tables, or text passages that have already been published elsewhere are required to obtain permission from the copyright owner(s) for both the print and online format and to include evidence that such permission has been granted when submitting their papers. Any material received without such evidence will be assumed to originate from the authors.
