Theories and Paradigms of International Business Activity
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Theories and Paradigms of International Business Activity

The Selected Essays of John H. Dunning, Volume I

John H. Dunning

This volume contains a selection of John Dunning’s best known and highly acclaimed writings on the theory of international business activity. Spanning more than three decades, the 16 contributions trace the evolution of his thoughts and ideas as an economist, from his first article on the determinants of international production, published in 1973, to his most recent essay on relational assets, networks and global business activity, completed in 2002.
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Chapter 2: Trade, Location of Economic Activity and the Multinational Enterprise: A Search for an Eclectic Approach

The Selected Essays of John H. Dunning, Volume I

John H. Dunning


* I The main task of this chapter is to discuss ways in which production financed by foreign direct investment, that is, undertaken by MNEs, has affected our thinking about the international allocation of resources and the exchange of goods and services between countries. The analysis takes as its starting-point the growing convergence between the theories of international trade and production, and argues the case for an integrated approach to international economic involvement, based both on the location-specific advantages of countries and the ownership-specific advantages of enterprises. In pursuing this approach, the chapter sets out a systemic explanation of the foreign activities of enterprises in terms of their ability to internalize markets to their advantage. It concludes with a brief examination of some of the effects which the MNE is allegedly having on the spatial allocation of resources, and on the patterns of trade between countries. I begin by looking at the received doctrine on international economic involvement. Until around 1950 this mainly consisted of a well-developed formal theory of international trade and a complementary but less well-developed theory of capital movements. With the notable exceptions of John Williams (1929)1 and Bertil Ohlin (1933), international economists of the interwar years were less concerned with explanations of the composition of goods and factors actually traded across boundaries (and implicitly, at least, of the spatial distribution of economic activity) as with theorizing on what would occur if, in the real world, certain conditions were present. The Heckscher–Ohlin model, for example, asserted...

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