International Handbook on the Economics of Integration, Volume III
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International Handbook on the Economics of Integration, Volume III

Factor Mobility, Agriculture, Environment and Quantitative Studies

Edited by Miroslav N. Jovanović

With this Handbook, Miroslav Jovanović has provided readers with both an excellent stand-alone original reference book as well as an integral part of a comprehensive three-volume set. This introduction into a rich and expanding academic and practical world of international economic integration also provides a theoretical and analytical framework to the reader, presenting select analytical studies and encouraging further research.
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Chapter 1: Foreign Direct Investment and Economic Integration

Christos N. Pitelis


Christos N. Pitelis1 1 INTRODUCTION This chapter explores the role of foreign direct investment (FDI) on the competitiveness of emerging economies and economic integration. This chapter is structured as follows. Following this introduction, Section 2 assesses briefly and critically extant theories of FDI and the multinational enterprise (MNE). Section 3 critically assesses competitiveness and catching-up theory and policy and the role of FDI in this context. Section 4 sets off from limitations of extant scholarship identified in the previous section to develop a novel framework for competitiveness and catching-up and discuss the role of FDI, clusters and government policy in its context. Section 5 discusses ways through which emerging economies can effect economic integration through enhanced competitiveness and accelerated catching-up, by leveraging strategies informed from recent developments of scholarship in international business (IB) strategy. Section 6 summarises and concludes. 2 THEORY OF FOREIGN DIRECT INVESTMENT AND THE MULTINATIONAL ENTERPRISE Extant Theory of FDI and the MNE The theory of FDI and the MNE dates back to Stephen Hymer’s PhD dissertation, completed in 1960, and published in 1976. Hymer is arguably the father-figure of the theory of the MNE because he is the first scholar who posed the question ‘why FDI?’ vis-à-vis alternative modalities of what he called ‘foreign operations’, such as licensing, tacit collusion, joint ventures and so on (Dunning and Pitelis, 2008).2 Accordingly, Hymer posed the question ‘why internalise?’, for the case of the MNE, much in line with Coase’s (1937) similar question for the...

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