Foreign direct divestment theory : Is it the reverse of FDI theory?

Abstract

are several competing theories of foreign direct investment (abbreviated here to FI) which provide partial explanations of this phenomenon [for recent reviews, see: Casson, 1980; Calvet, 1981; Grosse, 1981; Rugman, 1981]. A few scholars, however, have attempted to integrate such capital, location, industrial-organization, growth-ofthe firm, market-failure, foreign-exchange, portfolio and product-lifecycle sub-theories into a coherent and self-sufficient whole [e.g., Casson, 1980; Dunning, 1979, 1980, 1981a, 1981b; Robock, 1980; Rugman, 1980, 1981]. Dunning is singled out here because he has offered an "eclectic theory of international production" which pulls together most of these various strands; and his theory lends itself well to attempting a proto-theory of foreign direct divestment (abbreviated here to FD). This choice does not ignore that Dunning's theory has been challenged by such scholars as Rugman [1980; 1981; 1982], Buckley and Casson [1976], Casson [1980], and Buckley [1982]. Rugman, for one, has offered another integration of partial theories via internalization that is, the development by the multinational enterprise (MNE) of an "internal market" in response to "failures or imperfections" in the "external market" for goods and factors: "The MNE is in the business of internalizing externalities. It is now time to recognize that internalization is a general theory of FDI and a unifying paradigm for the theory of the MNE" [1980, p. 376]. Buckley and Casson [1976] also stress internalization, but Rugman is willing to concede much similarity between the eclectic and internalization theories [1981, pp.14 15; 1982, p. 13]. Dunning, however, still prefers to think of his eclectic theory as the paradigm, with internalization being a subset of it.