Investment Development Path in the European Union in the Context of Financial Crisis

The Oli Paradigm And Idp Theory

The main catalysts of FDI flows are multinational enterprises (MNEs). As the main creators of FDI, MNEs always look for the best place to make their investment. Taking in account this fact, many theories were developed over the years, but the most complex of all is the eclectic theory, also named the OLI paradigm (Dunning 1979, 1988, 1993).

The eclectic theory considers that FDI are the result of specific interaction of several theories on international trade, monopoly advantage and internalization of production. According to John Dunning, the theory regarding activity of MNE is on the border “between macroeconomic theory of international trade and microeconomic theory of the firm, is an exercise of macroeconomic allocation of resources and organizational theory.” According to this specialist, certain forms of trade is explained by the specific advantages of exporting firm`s country and others (like knowledge intensive products) are explained by the exporting firm specific advantages. Exports of goods occur when firm-specific advantages are best combined with the advantages of the exporting country rather than with the importing country. Otherwise, FDI are realized. So FDI occur as a result of combining the firm-specific advantages with the host country`s resource endowment advantages.