The Selected Essays of John H. Dunning, Volume I
Chapter 14: The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity
Dunning 04 chap 13 12/7/02 3:41 pm Page 408 14. The eclectic paradigm as an envelope for economic and business theories of MNE activity* INTRODUCTION: THE CONTENTS OF THE ECLECTIC PARADIGM For more than two decades, the eclectic (or OLI1) paradigm has remained the dominant analytical framework for accommodating a variety of operationally testable economic theories of the determinants of foreign direct investment (FDI) and the foreign activities of multinational enterprises (MNEs).2 The eclectic paradigm is a simple, yet profound, construct. It avers that the extent, geography and industrial composition of foreign production undertaken by MNEs is determined by the interaction of three sets of interdependent variables, which themselves comprise the components of three sub-paradigms. The first is the competitive advantages of the enterprises seeking to engage in FDI (or increase their existing FDI), which are specific to the ownership of the investing enterprises, i.e. their ownership (O) specific advantages. This sub-paradigm asserts that, ceteris paribus, the greater the competitive advantages of the investing firms, relative to those of other firms – and particularly those domiciled in the country in which they are seeking to make their investments – the more they are likely to be able to engage in, or increase, their foreign production. The second is the locational attractions (L) of alternative countries or regions, for undertaking the value adding activities of MNEs. This sub-paradigm avers that the more the immobile, natural or created endowments, which firms need to use jointly with their own competitive advantages, favor a...
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