A Synthesis of Foreign Direct Investment Theories and Theories of the Multinational Firm
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* Itwas twenty years ago that the late Stephen Hymerwrote his seminal thesis INTRODUCTION on foreign direct investment (FDI)and multinational enterprises (MNEs). Since then, the literature on these subjects has increased substantially and taken different directions, placing the multinational firm at the crossroads of many disciplines and of many debates as well. Behind the proliferation of articles and books in this field, Hymer's theoretical contribution has remained unshaken and has led the way to furtherelaboration and refinement of the theory. One can hardly find a publication on FDIthat does not make some reference to Hymer's work-which is highly indicative of its relevance. His early insights into the determinants of foreign direct investment have paved the way for further research, and major additions have taken place since, perhaps with increased frequency in the last five years. This renewed interest in the theory of the multinational firm (rather than foreign direct investment-a point to which this discussion shall return)results from various reasons, a major one being the paralleland growing interest in the economics of internalorganization. The time seems ripe for reviewing the workdone over the last few years in the direction pursued by Hymer and for identifying recent trends likely to guide the future research in the field. Such is the purpose of this paper. Section one presents a taxonomy of the determinants of foreign direct investment derived from the market imperfections paradigm. Section two singles out recent contributions to the theory of the MNE. In section three a new theoretical framework is proposed- the markets and hierarchies approach - in an attempt to encompass the various strands of current research on the MNE. Finally, section four discusses areas for further study. Kindleberger provided the first comprehensive survey of the various theories of foreign direct investment along the lines expressed by Hymer.1He approached the question of direct investment from the standpoint of the perfectly competitive model of neoclassical economics by asserting that in a worldof pure competition direct investment could not exist. [Kindleberger1969, p. 13] Indeed, when all markets operate efficiently, when there are no external economies of production or marketing, when information is costless and there are no barriersto trade or competition, international trade is the only possible form of international involvement.2 Logically, it follows that it is the departures from the model of per-
FOREIGNDIRECT IN INVESTMENT THECONTEXT OF THETHEORY OF THEMARKET: THEMARKET IMPERFECTIONS PARADIGM
*A.L.Calvetis AssistantProfessorat the Facultyof Administration at the Universityof Ottawa.This paperis based upon his doctoraldissertationcompletedat M.l.T.in 1980. Theauthoris muchindebtedto JohnH.Dunningof the Universityof Readingformanyvaluablesuggestions. Twoanonymousrefereesalso providedvaluablecomments.Allresponsibility for errors remains with the author.
Journal of International Business Studies, Spring/Summer
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