Advantages Of Internalization
Internalization advantages (I)
The internalization advantages occurs as response to market failures, buyers and sellers share asymmetric information, this can generate insecurity around the quality of the transactions and the proper price. As described by Dunning there should be an internalization gain in that the firm considers that its ownership advantages are best exploited internally rather than sold directly in spot markets or offered to other companies by means of contractual arrangements such as the creation of a joint venture, licensing or management contracting. This advantage arise from the problems which do exist in writing enforceable and controllable contracts with overseas partners that engender an income approximating to the real value of the advantage being sold marketed.
In summary, firms or multinationals will engage in foreign activities if the economic characteristics of their host countries and home countries are favorable, however, it will also depend on the characteristics of the industry and also its own characteristics. That is, explicit factors will influence the internationalization decision.
Besides Dunning other researchers try to explain the relationship between FDI and the stock market development and financial development. These theories are based upon two main criteria which are macroeconomics factors and microeconomic elements. The relationship of FDI to stock market development is unclear in theory, this relationship is complementary
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