Until some 20 years ago, economists viewed the multinational enterprise (MNE) as merely an arbitrageur of capital. Stephen Hymer (1976) observed, however, that there are several features of direct foreign investment (DFI) and MNE that are inconsistent with the capital arbitrage theory. He then put forth 2 major tenets: 1. DFI is motivated by efforts to eliminate competition among enterprises in different countries. 2. DFI is motivated by the attempts of domestic firms to increase the returns from the utilization of firms' special advantages. The Hymer thesis moved the theory of DFI out of the realm of international trade and finance and into industrial organization. The thesis is misleading, however, in its emphasis upon market power rather than efficiency. Similarly, it fails to provide a workable framework for examining host-country control issues. It also is unable to deal with intermediate organizational forms, such as cooperative and teaming agreements. Much progress has been made in improving the theory and correcting these errors, but more work is still needed.
My Research