Foreign Direct Investment: Theory, Evidence And... Apr 2026

: 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.

: 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. Foreign Direct Investment: Theory, Evidence and...

The relationship between FDI and economic growth remains a subject of intense debate, often referred to as "empirical ambiguity". : Focuses on reducing transaction costs

: 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. The relationship between FDI and economic growth remains

In practice, the landscape for FDI is rapidly shifting due to geopolitical and technological changes.