Overview of Main FDI Theories
In the nineteenth century, classical economic theories (e.g. those of Adam Smith, David Ricardo) regarded international trade as a motor of economic internationalization and integration. Internationalization through trade was considered an essential catalyst for generating domestic wealth, especially when a country sought specialization in those economic activities where it had comparative advantages. Private companies had become the principal economic agents of the capitalist system in place, and leading scholars in countries with open economies like England favoured deregulation and liberalization in all possible spheres of economic life so that trade relations could be expanded with other countries. Unlike the 'interventionists' in France, the liberal 'free traders' in England and the United States emphasized the importance of a 'natural order of things' pushing for a lean State that would interfere as little as possible in the 'invisible' hand of the market, which would always find its own equilibrium. 1
International trade was initially promoted by mainly Dutch, English and French companies in overseas colonies, where they controlled sales outlets, and warehousing and assembly facilities. These companies had also established some manufacturing capabilities in distant markets, but it took almost a century — towards the mid-1950s — before transnational corporations (TNCs) in the modern sense started appearing in the United States, with full-fledged production networks spanning the globe. The position of uncontested leadership acquired by some of these corporations enabled them to commit part of their human and financial resources to productive investments in the growing markets of Latin America and Europe, where they benefited from postwar reconstruction efforts. These extensive internationalization activities of US corporations like Coca-Cola, Dupont, General Electric, General Motors, IBM and Xerox provided academicians and analysts in the United States and Europe with the empirical basis for identifying explanatory variables of FDI decisions and behaviour patterns.