UGF Lecture 2

Management > Global Firm > Hymer > FDI

Hymer's criticisms of FDI

Hymer noted four flaws in the FDI argument:

1. It indicated one-way flows of FDI, from developed to developing countries. In fact, in the post-war years FDI went two ways and between developed countries
2. The theory suggested that a country would either import or export FDI, but not both. Hymer discovered that most developed countries experienced both outward and inward FDI
3. Hymer observed that some industries made more outward investments than others. fore example, cars, electronics and pharmaceuticals were strong in outward FDI, while building materials and aircraft were weak. FDI theory stated that the capital availability of a country was the main contributing factor of outward FDI, not an industry.
4. It was discovered that an act of FDI often did not involve capital transfer, as it was financed locally (as this would help avoid problems of exchange rates). This contradicts the FDI theory that capital moves from a capital rich country to a capital poor country.

MNE theory