The paper presents a simple general equilibrium model that formalizes internationalization in the eclectic paradigm based on a reconfiguration of concepts taken from the new classical economics literature. The model enables us to address simultaneously the role of ownership, location and internalization advantages, and their interaction, in the emergence of the multinational enterprise (MNE) through a set of mathematical inequalities. Our model offers a bridge between the detached perceptions of the MNE often held by international trade economists and international business scholars, and makes specific aspects of the eclectic paradigm empirically testable.
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A similar view is also taken by Buckley and Casson (1976, 1998), Hirsch (1976), Hennart (1982, 1993) and Rugman (1981, 1986).
K can be thought of as the quantity of tacit and codified technological know-how, patents and designs obtained by entrepreneurs.
Physical capital costs are assumed to converge around the globe, and hence are ignored in this model (Casson, 1985). Differences in production output are expected to be mainly a function of know-how level, labor volume and labor productivity.
Strictly speaking we should refer to intra-firm and inter-firm transaction costs where the latter are expected to exceed the former (Buckley & Casson, 1976; Williamson, 1975, 1985). Ignoring intra-firm transaction costs is done for simplicity and does not change the results of our model.
For simplicity we assume that the parameters a and α are identical for entrepreneurs in A and in B.
Or alternatively the utility of n B transactions in which K′ A was transferred by any number of A's entrepreneurs smaller than n B.
This is so because such entrepreneurs will always be able to offer them marginally higher wages in terms of g (i.e., w i +ɛ, where ɛ=incremental wage difference).
The case where FDI in A is selected is perfectly symmetric.
Since all entrepreneurs in B are identical, enrolling a single entrepreneur will suffice.
We are in debt to an anonymous reviewer for this comment.
Or alternatively the utility of n A transactions in which K′ B was transferred by any number of B's entrepreneurs smaller than n A.
As they appear in both the numerators and the denominators of Eqs. (11a), (11b), (11c) and (11d).
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We thank Editor-in-Chief Arie Y Lewin and two anonymous JIBS reviewers for their guidance. Niron Hashai thanks the Asper Center for Entrepreneurship at the Hebrew University for its financial support.
Accepted by Arie Y Lewin, Editor-in-Chief, 30 July 2007. This paper has been with the authors for one revision.
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Buckley, P., Hashai, N. Formalizing internationalization in the eclectic paradigm. J Int Bus Stud 40, 58–70 (2009). https://doi.org/10.1057/palgrave.jibs.8400421
- multinational enterprise
- eclectic paradigm
- entry mode