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A Tale of Two Theories: Foreign Direct Investment Decisions from the Perspectives of Economic and Institutional Theory

Sabine Böckem and Anja Tuschke

Schmalenbach Business Review (sbr), 2010, vol. 62, issue 3, 260-290

Abstract: 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. (search for similar items in EconPapers)
JEL-codes: F21 O52 P20 (search for similar items in EconPapers)
Date: 2010
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Handle: RePEc:sbr:abstra:v:62:y:2010:i:3:p:260-290