The Selected Essays of John H. Dunning, Volume I
Chapter 3: Trade, Location of Economic Activity and the Multinational Enterprise: Some Empirical Tests
Dunning 01 chaps 10/7/02 11:58 am Page 77 3. Trade, location of economic activity and the multinational enterprise: some empirical tests* I There is now a consensus of opinion that the propensity of an enterprise to engage in international production, that is, production financed by foreign direct investment, rests on three main determinants: first, the extent to which it possesses (or can acquire, on more favourable terms) assets1 which its competitors (or potential competitors) do not possess; second, on how far it is possible, and in its best interests, to lease these assets to other firms, or make use of them itself; and third, on whether it is more profitable to exploit these assets in conjunction with the indigenous resources of foreign countries or with those of the home country. The more the ownership-specific advantages possessed by an enterprise, the greater the inducement to internalise them, and the wider the attractions of a foreign rather than a home country production base, the greater the likelihood that an enterprise will engage in international direct investment. A national firm supplying its own market has various avenues for growth. It can diversify horizontally or laterally into new product lines, or vertically (i.e. upstream or downstream) into new activities, including the production of knowledge; it can acquire existing enterprises; or it can exploit foreign markets. When it makes good economic sense to choose the last route (which may also embrace one or more of the others), the enterprise becomes an international enterprise. However,...
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