UGF Lecture 6

Management > Global Firm > Kojima

Kojima

Kojima (1978) presented five ways which contributed to the theory of FDI (although it can be perceived as an evolution of MNE theories):

1. A return to the macroeconomic approach (including capital availability of countries). He considers the importance of location advantages, which can be either positive or negative.
2. Location factors are a must, as is the evaluation of comparative advantages of industries within a country. Kojima argues that FDI should flow out from industries in countries which have the least comparative advantages and into industries in a country where the comparative advantage is possible but not yet realised.
3. The approach to FDI is normative or evaluative, a concept no MNE theory had considered so far. The various aspects of the welfare effects of FDI are explicitly modelled.
4. The aim was to draw conclusions about FDI and the development of LCDs
5. The ideas on FDI relate to a dynamic theory of the international division of labour.

Thus it appears that Kojima argues that FDI should originate in the outward investing countries' comparatively disadvantaged industries and move to host countries where these same industries have a potential comparative advantage.

The theory does not discuss the firms which carry out the FDI, but emphasises the capability and potentials of the industry in the investing and host country.

Realisation of the advantage potential will boost the welfare of the host country and of the international economy (fuller utilisation of resources) and should (normative emphasis) be implemented through FDI.

Kojima's case can be explored by comparing two different FDI cases.

1. Case A
2. Case B

Case A

Case B

Conclusive remarks

Further analysis

Real Case A

Real Case B

Positive and Negative LAs