: Developed by Hymer, this posits that firms must possess unique "firm-specific advantages" (e.g., proprietary technology, brand power) to overcome the "liability of foreignness"—the inherent disadvantages of operating in a distant, unfamiliar environment.
In practice, the landscape for FDI is rapidly shifting due to geopolitical and technological changes. Foreign Direct Investment: Theory, Evidence and...
: Evidence for "horizontal spillovers" (benefits to local competitors) is often weak, as multinationals actively guard their technology. However, "backward linkages"—where foreign firms upgrade the capabilities of their local suppliers—show more robust positive effects. : Developed by Hymer, this posits that firms
: Focuses on reducing transaction costs. Firms internalize activities across borders when the costs of using external markets (e.g., enforcing contracts or protecting IP) are too high. Theories explaining why firms choose to invest directly
Theories explaining why firms choose to invest directly in foreign markets rather than exporting or licensing can be categorized into four main perspectives: