Theories and empirical research on foreign direct investment: Survey, critical review and new directions

The objectives of the dissertation are two. The first is a survey of the theoretical and empirical studies on the determinants of foreign direct investment (FDI). The second, is an attempt at synthesis of the theoretical explanations of FDI. The majority of the theories and research reviewed in the dissertation analyze (schools of thought enclosed in parentheses): (1) from which and into which countries FDI flows (liberals, structuralists, Marxists, dependencia, trade theories, and location theories), (2) from which industries FDI emerges (industrial organization), (3) which firms undertake FDI (structuralists, Marxists, dependencia, and industrial organization), (4) why firms undertake FDI (all theories), and (5) which conditions assist or disrupt the flow of FDI (structuralists, Marxists, and political risk analysis). In the survey it is concluded that a major problem with the analysis of FDI is that FDI is studied from the point of view of the firm and its willingness to supply FDI. This is the supply side of FDI. The foundation of the theoretical and empirical studies regarding the determinants of FDI appears to have ignored the demand side of FDI including the role of the governments and government structures in the allocation of FDI. It should be fully recognized that FDI takes place not only because firms are able and willing to undertake it but also because host governments are able and willing to accept it. From this point of view, FDI is the function of supply, demand and institutional conditions. The suggested model which remains in an embryonic stage is as follows. The commodity is FDI and it is a proxy of net benefits to the suppliers and the demanders. The suppliers as the set of firms which are willing and able to supply FDI. The demanders are the set of countries which are willing and able to host FDI. The present value of net benefits to the suppliers and demanders clears the market