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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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Executive Summary

The authors 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, they are able to explore the explanatory power of both economic and institutional reasons for FDI. The 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. They believe that any research that ignores one or the other explanation suffers from a serious omission.

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