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

Schmalenbach Business Review, Vol. 62, pp. 260-290, July 2010

31 Pages Posted: 23 Nov 2010  

Sabine Böckem

University of Basel

Anja Tuschke

Ludwig Maximilian’s University - Institute of Strategic Management

Date Written: July 15, 2010

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

JEL Classification: F21, O52, P20

Suggested Citation

Böckem, Sabine and Tuschke, Anja, A Tale of Two Theories: Foreign Direct Investment Decisions from the Perspectives of Economic and Institutional Theory (July 15, 2010). Schmalenbach Business Review, Vol. 62, pp. 260-290, July 2010. Available at SSRN: https://ssrn.com/abstract=1713122

Sabine Böckem (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Anja Tuschke

Ludwig Maximilian’s University - Institute of Strategic Management ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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