The Motives Of Foreign Direct Investment Essay

1061 Words Apr 23rd, 2016 null Page
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 FDI are the Electric theory of FDI, internationalization theories and institutional base view .
2.1.1 Electic Paradigm
The eclectic paradigm, as developed by Dunning (1988, 1995) provides a conceptual framework that can be used to explain FDI whereby Dunning is one of the most referenced one by authors working on FDI.
Based on the paradigm, there are three variables for country 's propensity to attract inward investment, including Ownership-specific (O); Location-specific (L); and Internalization (I). OLI is the intersection of macroeconomic theory of international trade (L) and the micro economic of the firm (O and I). Ownership advantage, including tangible assets (capital endowment and natural man power) while intangible assets (,…

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