Political Economy of Foreign Direct Investment: The Complexity of Linking Theory with Practice

Political Economy of Foreign Direct Investment: The Complexity of Linking Theory with Practice

Esra LaGro (CIRP, Turkey)
DOI: 10.4018/978-1-5225-2345-1.ch006
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The global political economy evolves around shifting theoretical and conceptual paradigms that simultaneously reflect the ongoing globalization process involving several actors and processes. Thus the complexity of linking the theory and practice of global political economy increases, and this, in return, accelerates further the in-depth inquiries in this interdisciplinary field of research such as discussions around global governance, international economic system, international trade, global value chains, and international development among several others. More specifically, in parallel with these developments, underlying trends in the global economy point to vast developments in both theory and practice of foreign direct investment (hereinafter FDI) across regions, countries and sectors as well, which form the main focus point of this chapter which will attempt to address the complexity of linking theory with actual practice through also involving global value chains with reference to FDI between EU member states and Turkey.
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The mainstream GPE theories such as Realism (Economic Nationalism), Liberalism and Historical Structuralism (Marxism) provide a relatively clear analytical distinction while also covering a variety of sub-theories and hybrid paradigms in themselves or at times intersecting with one another in relation to the criticisms around the mainstream theories. This widely recognized analytical classification of the GPE theories owes to Cohn (2011). For the sake of clarity in relation to FDI, however, this section will not indulge in detailed definitions around these rather well-known GPE theories but instead will directly present an overview of more specific FDI theories that relate to the practice of FDI in an attempt to link the existing theoretical approaches with the practice for the better.

Prior to presentation of an overview of FDI theories, still, it is also important to present the internationally recognized definition of FDI. There are basically three internationally accepted definitions of FDI; one belongs to IMF (1993), the second one belongs to OECD (1996), and the third one is that of UNCTAD (2003). For the purposes of this chapter the OECD definition of FDI is taken into account which reads as below:

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