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After studying this chapter, you should be able to: 1. 2. 3. 4. 5. 6. understand the vocabulary associated with foreign direct investment (FDI) use the resource- and institution-based views to explain why FDI takes place understand how FDI results in ownership, location, and internalization (OLI) advantages identify different political views on FDI based on an understanding of FDIs benefits and costs to host and home countries participate in two leading debates on FDI draw implications for action
OLI Advantages
A firms quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages:
border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries
OWNERSHIP ADVANTAGES
dissemination risks - risks associated with
unauthorized diffusion of firm-specific know-how
LOCATION ADVANTAGES
agglomeration - location advantages that arise
from the clustering of economic activities in certain locations
INTERNALIZATION ADVANTAGES
international transaction costs - tend to be
higher than domestic costs - laws and regulations are typically enforced on a nation-state basis
radical view - political view that is hostile to FDI free market view - political view that suggests that
FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services
Repatriated earnings of profits from FDI Increased exports of components and services to host countries Learning via FDI from operations abroad