Foreign Direct Investment - Theories of Foreign Direct Investment

5 important questions on Foreign Direct Investment - Theories of Foreign Direct Investment

What is the theory of market imperfections?

When an imperfection in the market makes a transaction less efficient than it could be, a company will undertake FDI to internalize the transaction and thereby removing the imperfection.

What is an example of a market imperfection?

Tariffs are a common form.

What is the eclectic theory?

Firms undertake FDI when the features of a particular location combine with ownership and Internalization advantages to make a location appealing for investment.
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What is the theory of market power with FDI?

A firm tries to establish a dominant market presence in an industry by undertaking FDI

How can it achieve this dominance?

By vertically integrating its supply chain.

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