Original Articles

A Review of the Liter atur e on FDI Theor ies and Location Decision

  • Institute of Regional and Urban Economics, Renmin University of China, Beijing 100872

Received date: 2008-01-01

  Revised date: 2008-03-01

  Online published: 2008-03-25


With the growth of FDI and its more and more important role in globalized economies, the issues on FDI theory and FDI location decision have become interesting topics in many disciplines. The FDI theory in the true sense emerged in the early 1960s, and since the Hymer's Monopolistic Advantage Theory, the FDI theories have emerged one after another incessantly. Before 1980s, the theoretical FDI researches were mainly focus on the FDI behaviors in the developed country, and there emerged a series FDI theories such as Monopolistic Advantage Theory, International Product Life Cycle Theory, Comparative Advantage Theory, Theory of Dynamic Location Advantage, Internalization Theory and Eclectic Theory of International Production, in which can represent the development vein and the essentially mainstream theories. In 1980s, the growing prosperous outward FDI in the emerging industrialized countries gave the birth of the FDI theories for the developing countries. The representative theories include Development Stage Theory, The Theory of Small- scale Technology, The Theory of Localized Technological Change and The Theory of Technological Competence. Competitive Advantage Theory and Strategic Alliance Theory are the most recent progress for the FDI theory. Either the mainstream FDI theories for the developed countries or those for the developing countries can only explain the FDI behaviors for some countries (regions) in some specific scope and conditions to some extent. The current FDI theories are far from satisfying the real needs. So more systematical and mature FDI theory framework is still a subject for the future research. There are partial - equilibrium analysis and general - equilibrium analysis for the FDI location decision research. The former is focus on how single exogenous factor affect the firm's FDI decision, while the latter focus on a model framework and empirical specification that lays out the primary long- run determinants of FDI location. In the early years the classic factors such as size of market, taxes, labor costs and so on were took as the important ones influencing the FDI location, and recently agglomeration and regional integration have been emphasized. However, it is still an open issue on how to measure the agglomeration economies accurately and separate them from the classic factors. The general- equilibrium analysis is an ideal theoretical framework for FDI location decision research, but it also an open problem for lack of theoretical foundation support and appropriate empirical specification in practice. To sum up, there are 7 issues should be paid attention to for the future FDI research: (1) Construction of more systematic and mature theoretical framework for FDI theory. (2) The relationship between classic factors and agglomeration. (3) The location decision for different FDI types. (4) Multivariate interaction for firm- level and country- level factors on FDI location. (5) The conditions for the factors'effects on FDI location. (6) The regional integration effects on FDI location. And (7) The theoretical foundation and empirical specification for general- equilibrium FDI location analysis.

Cite this article

WEN Yuyuan . A Review of the Liter atur e on FDI Theor ies and Location Decision[J]. PROGRESS IN GEOGRAPHY, 2008 , 27(2) : 60 -73 . DOI: 10.11820/dlkxjz.2008.02.009


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