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A Tale of Two Theories: Foreign Direct Investment Decisions from the Perspectives of Economic and Institutional Theory

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  • Sabine Böckem
  • Anja Tuschke

Abstract

We analyze foreign direct investment (FDI) from two theoretical perspectives: the traditional economic perspective and the more recent institutional perspective. By combining a theoretical analysis with empirical tests, we are able to explore the explanatory power of both economic and institutional reasons for FDI. Our results show that a firm’s decision to engage in a foreign market is influenced by the attractiveness of the target market and by prior FDI decisions of large and successful peers. Thus, both theoretical perspectives complement each other in explaining FDI. We believe that any research that ignores one or the other explanation suffers from a serious omission.

Suggested Citation

  • Sabine Böckem & Anja Tuschke, 2010. "A Tale of Two Theories: Foreign Direct Investment Decisions from the Perspectives of Economic and Institutional Theory," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(3), pages 260-290, July.
  • Handle: RePEc:sbr:abstra:v:62:y:2010:i:3:p:260-290
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    Cited by:

    1. Oana Cristina Popovici & Adrian Cantemir Călin, 2014. "FDI theories. A location-based approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 3-24, September.
    2. Bartels, Frank L. & Napolitano, Francesco & Tissi, Nicola E., 2014. "FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)," International Business Review, Elsevier, vol. 23(3), pages 516-529.
    3. Luis Miguel Bolívar Caro & Gabriel Orlando Rodríguez Puello & Daniel Alfonso Forero vargas, 2016. "La inversión extranjera directa y su desempeño en Colombia, 1994 - 2014," REVISTA ECONOMÍA & REGIÓN, UNIVERSIDAD TECNOLÓGICA DE BOLÍVAR, vol. 10(2), pages 241-278, December.

    More about this item

    Keywords

    Foreign Direct Investment (FDI); Institutional Theory; Internationalization.;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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