Economics and eclectic paradigm

He effectively differentiated Foreign Direct Investment and portfolio investments by including the notion of control of foreign firms to FDI Theory, which implies control of the operation; whilst portfolio foreign investment confers a share of ownership but not control.

This will lead to the increase of market power for the specific firm, increasing imperfections in the market as a whole Ietto-Guilles, A final determinant for multinationals making direct investments is the distribution of risk through diversification. He suggested that firms invest in foreign countries in order to maximize their specific firm advantages in imperfect markets, that is, markets where the flow of information is uneven and allows companies to benefit from a competitive advantage over the local competition.

All of this motivations for FDI are built on market imperfections and conflict. By choosing different markets and production locations, the risk inherent to foreign operations are spread and reduced.

Stephen Hymer can be considered the father of international business because he effectively studied multinationals from a different perspective than the existing literature, by approaching multinationals as national companies with international operations, regarded as expansions from home operations.

A firm engaging in direct investment could then reduce competition, eliminate the conflicts and exploit the firm specific advantages making them capable of succeeding in a foreign market. Through FDI, a multinational can share or take complete control of foreign production, effectively removing conflict.

Hymer started his research by analyzing the motivations behind foreign investment of US corporations in other countries. He analyzed the activities of the MNEs and their impact on the economy, gave an explanation for the large flow of foreign investments by US corporations at a time where they were incomplete, and envisioned the ethical conflicts that could arise from the increase in power of MNEs.

When a rival company is operating in a foreign market or is willing to enter one, a conflict situation arises. A Study of foreign direct Investment, theories did not adequately explain why firms engaged in foreign operations. Neoclassical theories, dominant at the time, explained foreign direct investments as capital movements across borders based on perceived benefits from interest rates in other markets, there was no need to separate them from any other kind of investment Ietto-Guilles, Stephen Hymer also suggested a second determinant for firms engaging in foreign operations, removal of conflicts.

Eclectic Paradigm

Monopolistic advantage theory The monopolistic advantage theory is an approach in international business which explains why firms can compete in foreign settings against indigenous competitors [22] and is frequently associated with the seminal contribution of Stephen Hymer.The eclectic paradigm as an envelope for economic and business theories of MNE activity John H.

Dunning Reading University, UK and Rutgers University, USA Abstract This paper updates some of the author’s thinking on the eclectic paradigm of international production, and relates it to a number of mainstream, but context-specific economic and business theories.

Eclectic paradigm topic. The eclectic paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework. It is a further development of the internalization theory and published by John H.

Eclectic paradigm

Dunning in Eclectic paradigm (John H. Dunning. The eclectic paradigm is a theory in economics and is also known as the OLI-Model. It is a further development of the theory of internalization and published by John H.

Dunning in The theory of internalization itself is based on. The eclectic paradigm considers three factors. The first factor is whether a comparative advantage exists for the product the company wishes to develop in the foreign country.

The second factor considers whether there is an advantage to developing that product in one country instead of another. Economic globalisation and the subsequent growth of global and alliance capitalism have fundamentally affected the way in which MNC activities are undertaken and organised.


The various contributions to this special issue have evaluated the eclectic paradigm in the global economy, and its validity as. The eclectic paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework. [1] [2] It is a further development of the internalization theory and published by .

Economics and eclectic paradigm
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