MAN 4602 Lecture Notes - Lecture 8: Capital Outflow, Specific Performance, Foreign Direct Investment
Document Summary
This chapter reviewed theories that attempt to explain the pattern of fdi between countries and to examine the influence of governments on firms" decisions to invest in foreign countries. Any theory seeking to explain fdi must explain why firms go to the trouble of acquiring or establishing operations abroad when the alternatives of exporting and licensing are available to them. High transportation costs or tariffs imposed on imports help explain why many firms prefer fdi or licensing over exporting. Knickerbocker"s theory suggests that much fdi is explained by imitative behavior by rival firms in an oligopolistic industry. Dunning has argued that location-specific advantages are of considerable importance in explaining the nature and direction of fdi: according to dunning, firms undertake fdi to exploit resource endowments or assets that are location specific. Benefits of fdi to a host country arise from resource-transfer effects, employment effects, and balance-of-payments effects.
