International Finance: Theories, Types of FDI, and Strategic Goals of MNCs

The International Finance.1
INTERNATIONAL FINANCE
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International finance
Foreign direct investment takes place when an investor in one country invests in
another country, where he has acquired assets to carry out business in the foreign country. The
following are theories and perspectives of FDI
The institutional foreign direct investment Fitness theory by Witter and Wilhems(1998)
explained on the strength by which a country is able to attract the Foreign Direct investment,
Absorbing and retaining them in that country (Blonigen, 2014).
The internationalization theory is another model that explains, When comparing the FDI against
non-FDI, the FDI is less risky since the information dissemination Monopoly is less. However,
some other philosophers argued that non-FDI expansion mode is preferable since the
Decentralization cost is high.
The macroeconomic theory is another model that gives the perception that Foreign Direct
Investment is just flow of capital across the borders. Lipsy (2004) explained the micro-level
factors that attract Foreign direct investment as the size of the market, Economic growth, Gross
domestic product, Natural resources, political stability, and infrastructure.
Role of FDI in International business
This is the purpose by which the Foreign Direct investment is achieving. The role of FDI
includes Technological diffusion where there is technology transfer between the countries with
low technology to those with high technology and hence help such countries to grow. It also
helps to enhance peace by forming trading blocks and by this, countries can move freely and
remove trade barriers.