Internalization as a General Theory of Foreign Direct Investment

Abstract

The world is characterized by imperfections in the goods and factor markets which act as barriers to the free trade of goods and services and inhibit private international financial investment. As a result neither factor price equalization nor goods price equalization has been observed. Further, there is a large volume of foreign direct investment and international production by the multinational enterprise (MNE), an activity which cannot be explained readily by conventional trade theory alone.

This chapter first appeared in Weltwirtschaftliches Archiv (Review of World Economics), vol. 116, no. 2 (Tubingen: J.C.B. Mohr, June 1980): 365–79. Reprinted with permission.