Ecletic Paradigm Analysis

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FDI and the Ecletic Paradigm The increasing globalization has stimulated the appetite of Multi-National Corporation (MNC) to invest abroad while it has also forced the host country to create a more favorable environment for Foreign Direct Investment (FDI) (Chittle, 1999). International trade (exporting and licensing) and FDI (either greenfield investment or Merger and Acquisition (M&A) with an existing firm in the host country) are two important phenomena of globalization for MNC (Buckley, 2015). According to Liu et al. (2016), cross-border M&A is a significant component of FDI, being roughly about one-third of the total FDI flows. The main analytical framework to explain the determinants of FDI is the Eclectic Paradigm or OLI, which attempted…show more content…
Fotopoulos (2004) assessed the determinant factors of FDI and confirmed that firm size and age have a negative effect on growth while foreign ownership exerts a positive effect on firm growth. They conclude that MNC stimulates local industrial development by boosting firm growth. Moreover, Jay (2015) introduced financial factors in addition to strategic factors as determinants of FDI. Those financial factors concern internal capital market strength, corporate governance and exchange rate fluctuation, risk diversification, internal and external financing cost, and agency costs. There is variability in the significance of financial variables depending on industries and destinations. Malhotra et al. (2009) find that while cultural and geographic distance factors have a significant and negative impact on the number of FDI, administrative and economic distances have a meaningful and positive effect. They also find that the market potential of target countries significantly moderates the relation between the geographic/distance factors and the number of…show more content…
She concludes that location is the determinant of geographical patterns of US FDI. While domestic banking authorities have concerned of the impact of foreign bank presence on national monetary policy, exchange rates, capital inflows-outflow, investment pattern and its implications for the domestic financial industry. Some government seems to be anxious to attract foreign banks so as to increase domestic competition, establish new types of institutions and new financial instruments. However, the level of effectiveness of host-country local bank on the geographical pattern of US FDI in the banking industry overseas cannot be

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