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UGF Lecture 2Management > Global Firm > Hymer > FDI
FDIThe theory of FDI states that capital would flow from low profitability (low return on capital) to high profitability countries. The former country is capital rich, which means that industries are prospering, but also that wage levels are high, resulting in less profit. In addition, most of the investment opportunities have been exploited so only low-return new projects remain. The latter country is capital poor (less developed), where there is little industry but there are lots of opportunities to exploit, such as raw materials and cheap labour. Because people are poor there is little capital to capitalise on high profit opportunities. The theory of FDI suggests that capital would flow from developed to less developed countries. It is a macro-level theory, as it focuses on the countries, rather than organisations.
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