2. Explain the different theories of fdi. Understand how political ideology shapes a government’s attitudes towards fdi

What Is The Pattern Of FDI?

• Question: Why do firms in the same industry undertake FDI at about the same time and the same locations?
• Knickerbocker - FDI flows are a reflection of strategic rivalry between firms in the global marketplace
• multipoint competition -when two or more enterprises encounter each other in different regional markets, national markets, or industries

What Is The Pattern Of FDI?

• Question: But, why is it profitable for firms to undertake FDI rather than continuing to export from home base, or licensing a foreign firm?
• Dunning’s eclectic paradigm - it is important to consider
• location-specific advantages - that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets
• externalities - knowledge spillovers that occur when companies in the same industry locate in the same area

What Are The Theoretical Approaches To FDI?

• The radical view - the MNE is an instrument of imperialist domination
• and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries
• in retreat almost everywhere

What Are The Theoretical Approaches To FDI?

• The free market view - international production should be distributed among countries according to the theory of comparative advantage
• embraced by advanced and developing nations including the United States and Britain, but no country has adopted it in its purest form

What Are The Theoretical Approaches To FDI?

• Pragmatic nationalism - FDI has both benefits (inflows of capital, technology, skills and jobs)
• and costs (repatriation of profits to the home country and a negative balance of payments effect)
• FDI should be allowed only if the benefits outweigh the costs