FDI AND MULTINATIONAL CORPORATIONS: WHY?

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Presentation transcript:

FDI AND MULTINATIONAL CORPORATIONS: WHY? Motives for FDI and MNCs Literature: Dunning, chapter 3-6; Caves, chapter 1-2

TERMINOLOGY Direct investment - Portfolio investment Greenfields - Acquisitions Resource seekers - Market seekers - Efficiency seekers - Strategic Asset seekers Vertical - Horizontal

Explanations for FDI and MNCs Foreign Direct Investment market disequilibrium distortions imposed by governments market structure imperfections Multinational corporations market failures and market imperfections internalization diversification eclectic explanation: the OIL framework

FDI and market disequilibrium Differential rates of return Valuation of currencies / currency areas Labor cost differentials Technology differentials Portfolio diversification Main problem: FDI should disappear once equilibrium occurs

FDI and government imposed distortions Trade barriers Tax rules Investment incentives

FDI and market structure imperfections Hymer (1960) and industrial organization approach Oligopolistic reaction Product cycles

MNCs, market failures and market imperfections external effects and spillovers scale economies transactions costs

MNCs and internalization generalization of transactions cost approach various firm activities are interdependent and related through flows of intermediate products when transactions costs in arms-length markets are high, MNCs emerge

MNCs and OIL-framework Dunning (1977, 1979, 1989, 1993) argues that three types of arguments for FDI must be present before MNCs emerge: Ownership Internalization Localization More check-list than theory.

WHY SO MANY THEORIES? new explanations needed when old ones fail many different types of FDI researchers come from different fields of economics MNCs do not behave the same way in different environments