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Internalization is still a general theory of foreign direct investment

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Conclusions

Part IV of Parry's article discusses three types of FDI activity by MNEs; these are correctly analyzed and fully consistent with my earlier work. All the three cases (vertical integration, transfer pricing and quality control) are examples of market imperfections which lead to internalization. I am glad that Parry accepts these“three areas where internalization appears to provide an explanation of FDI as a specific form of international involvement by the MNE” but I am surprized that he still cannot accept the general point that these are examples of“market failure” in an international context, which lead to multinational hierarchical activity. The focus of my survey article was to demonstrate that“established theories of FDI” tend to fasten one to one or another of such market imperfections, but in all cases internalization results. Internalization as a general theory of FDI is still a robust principle. It provides the conceptual foundation for analysis of the MNE and the field of international business.

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Authors
  1. Alan M. Rugman
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Rugman, A.M. Internalization is still a general theory of foreign direct investment. Weltwirtschaftliches Archiv 121, 570–575 (1985). https://doi.org/10.1007/BF02708194

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