A Tale of Two Theories: Foreign Direct Investment Decisions from the Perspectives of Economic and Institutional Theory
Schmalenbach Business Review, Vol. 62, pp. 260-290, July 2010
31 Pages Posted: 23 Nov 2010
Date Written: July 15, 2010
We 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, we are able to explore the explanatory power of both economic and institutional reasons for FDI. Our 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. We believe that any research that ignores one or the other explanation suffers from a serious omission.
Keywords: Foreign Direct Investment (FDI), Institutional Theory, Internationalization
JEL Classification: F21, O52, P20
Suggested Citation: Suggested Citation