Notes :-
Theories Of FDI :
1. Ownership advantage theory:
This theory states that the firms having competitive advantage domestically derived from its valuable assets like technology, brand names and large scale economies extend their operations to foreign markets through FDI.
2. Internationalization Theory :
This theory states that the domestic company enters a foreign market through FDI when the cost of transaction with a foreign firm is high. The domestic company under these conditions internationalizes its production,marketing and other operations in foreign markets through FDI.
3. Dunning's eclectic theory:
John Dunning incorporates location advantage in addition to ownership advantage and internationalization advantage in his eclectic theory of FDI. This theory states that location - specific advantages are derived by combining the advantages of country location like assets, mineral,human and other resources with the specific advantages of the firm like technology, technical know - how,management, marketing capabilities etc...FDI will occur when the three conditions are satisfied.
a) ownership advantage
b) location advantage
c) internationalization advantage
4. Factor mobility theory:
Capital mobility through direct investment often stimulates trade because of the need and the components, complimentary products and equipment and subsidiaries. In addition FDI enhances export.
5. Product Lifecycle Theory(Vernon's theory):
according to this theory, firms go through four production cycles : Innovation, growth, maturity and decline.
6. Mac Dougall Kemp Hypothesis:
FDI moves from capital abundant economy to capital scares economy till the marginal production is equal in both countries. This leads to improvement in efficiency in utilisation of resources in which leads to ultimate increase in welfare.
7. Industrial Organisation Theory :
According to this theory, technology superiority is the main driving force for foreign direct investment rather than capital abundance. MNC with superior technology moves to different countries to supply innovated products making in turn ample gains.
24 сен 2024
