Over the past years, FDI has been growing interest especially in developing countries. Many studies carried out have recognized that FDI has actually supplements the most dominant type of investment and been served as a supplementary source of financing in many countries. This chapter discusses FDI theories and various empirical studies that have been carried out on the motives of FDI.
2.1 Theories on motivation of FDI
There are many theories, which attempt to explain the motives of FDI. These theories are important steps towards the development of the systematic framework for the emergence of FDI. Hence, this part reviews theoretical literature on the motives of foreign direct investment. The leading theories in identifying the motives of …show more content…
It is performed in order for a firm to get access to these resources (Dunning, 2000). The reason to seek a resource abroad can be that the firm can acquire it at a lower cost or of a higher quality in comparison to its home country (Dunning & Lundan, 2008). It is also a necessary investment when the resource in question is not at all accessible in the home country (Campos & Kinoshita, 2003). The investing firm is in this way hoping to increase its profitability and competitiveness in the markets where the firm is operating in (Dunning & Lundan, 2008). One highly wanted resource is physical natural resources such as oil and minerals (Dunning & Lundan, 2008). Where a resource seeking firm invests in that situation can be motivated by a country’s possession of natural resources (Dunning & Narula, 2004). Regarding FDI in developing countries, the investments are most often resource seeking (Dunning & Narula, …show more content…
Different labor factors are often described as strong determinants of inward FDI (Loree & Guisinger, 1995; Villaverde & Maza, 2011). The labor cost may prove important for FDI decisions, especially for labor-intensive industries (Loree & Guisinger, 1995). It is generally agreed, on a theoretical level, that cheap labor attracts FDI but there is no unanimity in empirical research (Chakrabarti, 2001). Schneider and Fry (1985) argue that FDI is more profitable if labor costs are low, but it is the labor quality that makes the investment worthwhile. In an African context, Krugell (2005) discusses that firms are likely to look for both low labor costs and high levels of labor productivity. Moreover, the flexibility of the labor market is critical to guarantee that workers are allocated to their most efficient use (World Economic Forum, 2011). Moreover, Dunning and Lundan (2008) stated the intension of efficiency seeker MNE is to take the advantage of cultures, demand patterns, economic policies, institutional arrangements, market structures and factor endowments by putting effort in a limited number of locations to supply multiple
2.1 Theories on motivation of FDI
There are many theories, which attempt to explain the motives of FDI. These theories are important steps towards the development of the systematic framework for the emergence of FDI. Hence, this part reviews theoretical literature on the motives of foreign direct investment. The leading theories in identifying the motives of …show more content…
It is performed in order for a firm to get access to these resources (Dunning, 2000). The reason to seek a resource abroad can be that the firm can acquire it at a lower cost or of a higher quality in comparison to its home country (Dunning & Lundan, 2008). It is also a necessary investment when the resource in question is not at all accessible in the home country (Campos & Kinoshita, 2003). The investing firm is in this way hoping to increase its profitability and competitiveness in the markets where the firm is operating in (Dunning & Lundan, 2008). One highly wanted resource is physical natural resources such as oil and minerals (Dunning & Lundan, 2008). Where a resource seeking firm invests in that situation can be motivated by a country’s possession of natural resources (Dunning & Narula, 2004). Regarding FDI in developing countries, the investments are most often resource seeking (Dunning & Narula, …show more content…
Different labor factors are often described as strong determinants of inward FDI (Loree & Guisinger, 1995; Villaverde & Maza, 2011). The labor cost may prove important for FDI decisions, especially for labor-intensive industries (Loree & Guisinger, 1995). It is generally agreed, on a theoretical level, that cheap labor attracts FDI but there is no unanimity in empirical research (Chakrabarti, 2001). Schneider and Fry (1985) argue that FDI is more profitable if labor costs are low, but it is the labor quality that makes the investment worthwhile. In an African context, Krugell (2005) discusses that firms are likely to look for both low labor costs and high levels of labor productivity. Moreover, the flexibility of the labor market is critical to guarantee that workers are allocated to their most efficient use (World Economic Forum, 2011). Moreover, Dunning and Lundan (2008) stated the intension of efficiency seeker MNE is to take the advantage of cultures, demand patterns, economic policies, institutional arrangements, market structures and factor endowments by putting effort in a limited number of locations to supply multiple