Dunning and Rugman (1985)

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Dunning and Rugman (1985) - The Influence of Hymer's Dissertation on the Theory of Foreign Direct Investment

Although mentioning the need for internal markets in his thesis, Hymer (1960) misses the difference between structural and transaction-cost (cognitive) market imperfections. The former include Bain-type advantages, such as scale economies, distribution networks and product diversification.

Transaction costs are what cause internalisation, not structural market failures. This shows that Hymer did not appreciate the work of Coase (1937).

When Hymer does mention internalisation, he discusses it with regards to the monopolistic benefits an MNE can enjoy when colluding with another firm. Indeed, joint ventures and M&As are types of internalisation, but Hymer is shown to be taking the market power approach.