Re-orienting the Paradigm: Path Dependence in FDI Theory and the Emerging Multinationals

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Abstract

Purpose
The purpose of this paper is to analyze how path dependence in the evolution of major theories of foreign direct investment (FDI) locked in a theoretical perspective of the multinational enterprise that focused on asset-exploitation. This perspective is challenged by recent contradicting observations of multinationals from China and other emerging economies. A decisive re-orientation of FDI theory is proposed as a way forward to resolve this tension.

Design/methodology/approach
Placing FDI theories into the context of FDI patterns prevailing at the time they were developed, Thomas Kuhn’s framework on the evolution of scientific knowledge is employed to track how the mainstream FDI theory emerged, went through a period of normal science and then approached a crisis of science in this field.

Findings
The evolution of FDI theory is strongly path-dependent, which made it difficult for theory to effectively incorporate new conceptual discoveries and empirical findings about the nature of FDI activity.

Originality/value
FDI theory would benefit from a full re-orientation to a demand-oriented perspective which places the pursuit of advantages, assets, resources, etc., at the core of the theory. Such a change is implicit in many recent theoretical advances and would assure theory is generalizable to all types of FDI.
Original languageEnglish
Pages (from-to)51-69
Number of pages19
JournalInternational Journal of Emerging Markets
Volume14
Issue number1
Early online dateJan 2019
DOIs
Publication statusPublished - 21 Jan 2019

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