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Determinants Of Foreign Direct Investment - A Tale Of Nine Theoretical Models

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  • Isabel Faeth
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    Abstract

    This paper presents a review of nine theoretical models of foreign direct investment (FDI). Discussed are early studies of determinants of FDI (1) as well as determinants of FDI based on the neoclassical trade theory (2), ownership advantages (3), aggregate variables (4), the ownership, location and internalization advantage framework (5), horizontal and vertical FDI models (6), the knowledge-capital model (7), diversified FDI and risk diversification models (8) and policy variables (9). From each of the nine theories, the relevant determinants of FDI are derived. Empirical studies indicate the importance of these determinants in the real world. The paper shows that there is not one single theory of FDI, but a variety of theoretical models attempting to explain FDI and the location decision of multinational firms. Therefore, any analysis of determinants of FDI should not be based on a single theoretical model. Instead, FDI should be explained more broadly by a combination of factors from a variety of theoretical models such as ownership advantages or agglomeration economics, market size and characteristics, cost factors, transport costs, protection, risk factors and policy variables. Copyright � 2008 The Author. Journal compilation � 2008 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

    Volume (Year): 23 (2009)
    Issue (Month): 1 (02)
    Pages: 165-196

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    Handle: RePEc:bla:jecsur:v:23:y:2009:i:1:p:165-196

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    Cited by:
    1. Sandro Montresor & Antonio Vezzani, 2014. "On the R&D giants' shoulders: Do FDI help to stand on them?," JRC-IPTS Working Papers on Corporate R&D and Innovation 2014-01, Institute of Prospective Technological Studies, Joint Research Centre.
    2. Akpan, Uduak & Isihak, Salisu & Asongu, Simplice, 2014. "Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT," MPRA Paper 56810, University Library of Munich, Germany.
    3. Alessia Amighini & Roberta Rabellotti & Marco Sanfilippo, 2011. "China's Outward FDI: An Industry-level Analysis of Host Country Determinants," CESifo Working Paper Series 3688, CESifo Group Munich.
    4. Sanjo, Yasuo, 2012. "Country risk, country size, and tax competition for foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 292-301.
    5. Antonio Baez, 2014. "“A panel data analysis of FDI and informal labor markets”," IREA Working Papers 201404, University of Barcelona, Research Institute of Applied Economics, revised Feb 2014.
    6. Raphaël Chiappini, 2014. "Institutional Determinants of Japanese Outward FDI in the Manufacturing Industry," GREDEG Working Papers 2014-11, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    7. Lin, Mi & Kwan, Yum K., 2010. "Sectoral Location of FDI in China," MPRA Paper 27088, University Library of Munich, Germany.
    8. Aarón Garavito A. & Ana María Iregui B. & María Teresa Ramírez G., 2012. "Determinantes de la inversión extranjera directa en Colombia: Un estudio a nivel de firma," BORRADORES DE ECONOMIA 009672, BANCO DE LA REPÚBLICA.
    9. Daniel Munich & Martin Srholec & Michael Moritz & Johannes Schaffler, 2012. "Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic," CERGE-EI Working Papers wp467, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    10. Oladottir, Asta Dis & Hobdari, Bersant & Papanastassiou, Marina & Pearce, Robert & Sinani, Evis, 2012. "Strategic complexity and global expansion: An empirical study of newcomer Multinational Corporations from small economies," Journal of World Business, Elsevier, vol. 47(4), pages 686-695.
    11. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series 076, FIW.
    12. Markus Leibrecht & Christian Bellak, . "Does the impact of employment protection legislation on FDI differ by skill-intensity of sectors? An empirical investigation," Discussion Papers 09/21, University of Nottingham, GEP.
    13. Marlene Grande & Aurora A. C. Teixeira, 2011. "Linking entry mode choices of MNCs with countries’ corruption. A review," OBEGEF Working Papers 008, OBEGEF - Observatório de Economia e Gestão de Fraude & OBEGEF Working Papers on Fraud and Corruption.

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