An extensive exploration of theories of foreign direct investment

Abstract

The purpose of this study was to identify and examine the key foreign direct investment theories. The history and origins of FDI theories were considered, prior to dwelling in-depth on the theories themselves. FDI theories were classified under macroeconomic and microeconomic perspectives. Macroeconomic FDI theories emphasize country-specific factors, and are more aligned to trade and international economics, whereas microeconomic FDI theories are firm-specific, relate to ownership and internalisation benefits and lean towards an industrial economics, market imperfections bias. FDI theories are fairly complex to explain and apply. This paper is purely qualitative in nature, and attempted to explain the different FDI theories by providing an analyisis of the key theories used in many scholarly works.