Caves (1996)

Management > Global Firm > Lectures > Independent Research > Caves > Failure of P assets > OLI and transaction costs > Hypothesis > Factors and Barriers > FDI > Hymer on FDI

Hymer on FDI

Hymer (1960) argued that the capital-arbitrage theory was incomplete because:
1. The US was investing abroad, but was experiencing an inflow of portfolio investment. Why would US firms not invest in their own companies, as the fact that they had shares to sell, suggests that the companies needed money?
2. Countries receive inward investment as well as outward investment – the theory clearly states that countries are totally involved in either inward or outward FDI. If the sole aim for an MNE was to “arbitrage capital”, then rates of return should “be high in some industries in each country and low in others” “Balkanised”??@@
3. If FDI was all about “capital arbitrage”, then surely financial firms would be the biggest players, but it is the case that non-financial firms are the main participants in FDI.

Hymer also began to consider the micro-economic theory of the MNE, observing that competition influences FDI and that they are not “randomly distributed among industries”. Pg25
His theory still assumes that an MNE crosses national boundaries in order to raise profits.

Further comments on FDI