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Government Policies, Market Imperfections, and Foreign Direct Investment

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  • Thomas L Brewer

    (Georgetown University)

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    Abstract

    The internalization/eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections, which make foreign direct investment an economically rational strategic alternative for firms. This paper reexamines the effects of government policies on market imperfections and foreign direct investment (FDI). It broadens and refines the analysis of the impact of government policies by developing the following arguments: (1) There is a wide range of government policies that affect firms′ FDI decisions via their effects on market imperfections. (2) There are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence FDI flows. (3) Some of the effects of government policies on market imperfections and FDI are the opposite of those previously noted in the FDI literature. (4) The effects of government policies vary across the several individual components of FDI flows. The paper thus examines the following variables and relationships more extensively and precisely than has the previous literature: government policy variables as causal factors affecting FDI; market imperfection variables as intervening factors in the causal connections between government policies and FDI; and the multiple indicators of the various dimensions of FDI as dependent variables.© 1993 JIBS. Journal of International Business Studies (1993) 24, 101–120

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 24 (1993)
    Issue (Month): 1 (March)
    Pages: 101-120

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    Handle: RePEc:pal:jintbs:v:24:y:1993:i:1:p:101-120

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    Cited by:
    1. Svensson, Bo, 2000. "The Scope And Potential Of Multi-Level Governance In Eu External Relations – Lessons From The Euro-Arctic," ERSA conference papers ersa00p54, European Regional Science Association.
    2. Janno Reiljan & Ele Reiljan, 2000. "The Nature And Problems Of Economic Globalization," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 3, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    3. Schroder, William R. & Mavondo, F., 1996. "The Government Agribusiness Interface: a Review of Conceptual Issues and Viewpoints for the Australian Food Manufacturing Sector," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 64(02), August.
    4. Joseph A. Clougherty & Michal Grajek, 2006. "The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis," CIG Working Papers SP II 2006-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    5. Shapiro, Daniel & Globerman, Steven, 2003. "Foreign investment policies and capital flows in Canada: a sectoral analysis," Journal of Business Research, Elsevier, vol. 56(10), pages 779-790, October.
    6. Ele Reiljan, 2001. "Determinants of foreign direct investment inflows in Estonia," University of Tartu - Faculty of Economics and Business Administration, in: Foreign Direct Investments in the Estonian Economy, volume 9, chapter 2, pages 31-90 Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Gielens, K. & Dekimpe, M.G., 2004. "How To Seize a Window of Opportunity: The Entry Strategy of Retail Firms into Transition Economies," Research Paper ERS-2004-038-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.

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