Role of Dunnings OLI Model in Foreign Direct Investment - Research Paper Example

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The paper "Role of Dunning’s OLI Model in Foreign Direct Investment" highlights that whereas Dunning’s OLI model provides a general paradigm for explaining the determinants of the Foreign Direct Investment, its use in designing an international corporate strategy, as defined by Head, is limited…
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Role of Dunnings OLI Model in Foreign Direct Investment
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Download file to see previous pages The internalization theory illustrates that the fundamental reasons for Multinational enterprise to indulge in Foreign Direct Investment is to internalize the most component of the process of production. Such a purpose of FDI reduces the usual business risks and provides the MNE economy-of-scale merits. Therefore, the Dunning’s electric paradigm reaffirms such a purpose of FDI and integrates it further with corporate monopolization and national comparative advantage (Dunning, 1995). The proceeding discussion will thus showcase the how the relevant to the statement through an in-depth investigation of the Dunning OLI paradigm with respect to its use in designing an international cooperate strategy and further showcase the model is limited and suggest the appropriate specific models it requires.
The point of the argument is that the mainstream typology of O advantages projected in Dunning’s electric paradigm does not recognize the uniqueness of each firm. The critic, therefore, proposes a new typology of O advantages that separates among four types depending on the geographic sources of such merits and their transferability across the borders. Furthermore, critics acknowledge the significance of resource recombination advantages. The Electric Paradigm provides a general framework for illustrating international production. The paradigm encompasses three variables, ownership-specific (O) location-specific (L) and internalization (I) as already recognized in the previous theories of trade and Foreign Direct Investment (Dunning, 1995). The paradigm is commonly referred to as the OLI framework and position itself at the intersection of a macroeconomic theory of international trade (L) and a microeconomic theory of the firm (O-specific advantages and I-specific advantages).
The paradigm is, therefore, an exercise in the allocation of resources and organizational economics.  ...Download file to see next pagesRead More
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