Square One: In Search of a Legal Typology of Foreign Investment
19 Pages Posted: 26 Jun 2016
Date Written: June 24, 2016
This paper revisits John Dunning’s economic taxonomy of investors and considers replacing it with a new typology based on the application of the conception of investor interest in the areas of legal protection of foreign direct investment (FDI) and investment arbitration. Dunning’s typology of foreign production explains the economic motives of investors but fails to reflect legal protection particular to each investment.
Proposed typology of investor interests reflects Dunning’s taxonomy of foreign production, which was adjusted in order to reflect legal expectations of investors. Dunning developed Behrman’s taxonomy and identified four types of foreign production: i. natural resource seekers; ii. market seekers; iii. efficiency seekers; and iv. strategic asset or capability seekers. Due to minimal impact of the motivation of market seekers on legal structure of their investments, the proposed taxonomy disregards the category of market seekers as a separate category, and adopts labour intensive/skill intensive division instead in order to reflect the legal risk the investor is willing to undergo depending on the specificity of the investment. Moreover, the division between natural resources seeker, market seekers, and efficiency seekers does not have a significantly different impact on the legal structure of the investment, and is therefore simplified and incorporated into investment types A (skill-intensive investments) and B (labour intensive & Resource-seeking). Strategic assets investment, which are according to Dunning conducted to add to conglomerate’s portfolio of assets (e.g. purchase of hotels chain by a food producing company) are not considered to be a specific investment interest, although it might be well reflected in the investor interest type A and B for their similarities in legal repercussions.
It is suggested that the proposed typology allows for a detailed understanding of investor motives with regards to law, which in turn allows the host states to structure their substantive and procedural investment protection depending on the type of investment host states wish to attract as well as relevant public interests that the state may want to protect.
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