Investment Development Path in the European Union in the Context of Financial Crisis

Investment Development Path in the European Union in the Context of Financial Crisis

Marian Cătălin Voica (The Bucharest University of Economic Studies, Bucharest, Romania) and Panait Mirela (Petroleum - Gas University from Ploiesti, Ploiesti, Romania)
Copyright: © 2014 |Pages: 12
DOI: 10.4018/ijsem.2014100104
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Abstract

Since the start of foreign direct investment (FDI) studies, scholars asked themselves what drives companies to invest abroad, what incentives are needed to start the flow of FDI to one destination country and how is the flow changing as that countries development is more and more advanced. The academic community launched the hypothesis that the level of development of one country influences the flow of FDI, also known as the investment development path theory. This article is a case study of EU member states as the EU is one of the most advanced forms of cooperation between countries in the world and the flow of FDI has a great impact on its development. The authors follow the evolution of FDI since the year 2000, including the effects of the financial crisis on the flows of FDI, and their post-crisis recovery, and the correlation of the net output investment per capita of FDI with the GDP per capita levels.
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The Oli Paradigm And Idp Theory

The main catalysts of FDI flows are multinational enterprises (MNEs). As the main creators of FDI, MNEs always look for the best place to make their investment. Taking in account this fact, many theories were developed over the years, but the most complex of all is the eclectic theory, also named the OLI paradigm (Dunning 1979, 1988, 1993).

The eclectic theory considers that FDI are the result of specific interaction of several theories on international trade, monopoly advantage and internalization of production. According to John Dunning, the theory regarding activity of MNE is on the border “between macroeconomic theory of international trade and microeconomic theory of the firm, is an exercise of macroeconomic allocation of resources and organizational theory.” According to this specialist, certain forms of trade is explained by the specific advantages of exporting firm`s country and others (like knowledge intensive products) are explained by the exporting firm specific advantages. Exports of goods occur when firm-specific advantages are best combined with the advantages of the exporting country rather than with the importing country. Otherwise, FDI are realized. So FDI occur as a result of combining the firm-specific advantages with the host country`s resource endowment advantages.

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