The main task of this paper is to discuss ways in which production financed by foreign direct investment, that is, that undertaken by multinational enterprises (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 endowments of countries and the ownership-specific endowments of enterprises. In pursuing this approach, the paper sets out a systemic explanation of the foreign activities of enterprises, in terms of their ability to internalise 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.
- International Trade
- Home Country
- Direct Investment
- Foreign Market
- Vertical Integration
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
This is a preview of subscription content, access via your institution.
Tax calculation will be finalised at checkout
Purchases are for personal use onlyLearn about institutional subscriptions
Unable to display preview. Download preview PDF.
Alchian, A. and Demsetz, H., ‘Production, Information Costs and Economic Organisation’, American Economic Review 62 (Dec., 1972).
Aliber, R., ‘A Theory of Foreign Direct Investment, in C.P. Kindleberger (ed.) The International Corporation (Cambridge, Mass., M.I.T. Press, 1970).
Arrow, K. J., ‘The Organisation of Economic Activity: Issues Pertinent to the Choice of Market and Non Market Considerations: in The Analysis and Evaluation of Public Expenditures: the P.P.B. System’ Joint Economic Committee (Washington: U.S. Government Printing Office, 1969).
Arrow, K. J., ‘Vertical Integration and Communication’, Bell Journal of Economics (Spring, 1975) Vol. 5 No. 1.
Bain, J. S., Barriers to New Competition, (Cambridge: Mass.: Harvard University Press, 1956).
Baldwin, R. E., ‘International Trade in Inputs and Outputs’, American Economic Review, 60 (May, 1970).
Barnet, R. J. and Muller, R. E., The Global Reach (New York: Simon and Schuster, 1974).
Baumann, H., The Determinants of the Pattern of Foreign Direct Investment: Some Hypotheses Reconsidered. Unpublished paper, 1974.
Bergsten, E. F., Horst, T. and Moran, T. E., American Multinationals and American Interests. (To be published by Brookings Institution, 1977.)
Buckley, P. J. and Dunning, J. H., ‘The Industrial Structure of U.S. Direct Investment in the U.K.’, Journal of International Business (Fall/Winter, 1976).
Buckley, P. J. and Casson, M., The Future of the Multinational Enterprise, (London: Macmillan, 1976).
Caves, R. E., ‘Industrial Corporations: The Industrial Economics of Foreign Investment’, Economica 38 (Feb., 1971).
Caves, R. E., ‘Causes of Direct Investment: Foreign Firms’ Shares in Canadian and United Kingdom Manufacturing Industries’, Review of Economies and Statistics 56 (Aug., 1974a).
Caves, R. E., ‘Industrial Organisation’, in J. H. Dunning (ed.) Economic Analysis and the Multinational Enterprise (London, Allen and Unwin, 1974b).
Coase, R. H., ‘The Nature of the Firm’, Economica 4 (Nov., 1937).
Dunning, J. H., American Investment in British Manufacturing Industry (London: Allen and Unwin, 1958).
Dunning, J. H., ‘The Determinants of International Production’, Oxford Economic Papers 25, (Nov., 1973a).
Dunning, J. H., The Location of International Firms in an Enlarged E.E.C.: An Exploratory Paper, Manchester Statistical Society (1973b).
Furubotn, E. G. and Pejovich, S., ‘Property Rights and Economic Theory: A Survey of Recent Literature’, Journal of Economic Issues, 6 (Dec., 1972).
Gray, H. P., The Economics of Business Investment Abroad (London: Macmillan, 1973).
Hirsch, S., ‘Capital and Technology Confronting the Neo-factor Proportions and Neo-technology Accounts of International Trade’, Welt Wirtschaftliches Archive 110 No. 4 (1974).
Hirsch, S., ‘An International Trade and Investment Theory of the Firm’, Oxford Economic Papers 28 (July, 1976).
Horst, T., ‘Firm and Industry Determinants of the Decision to Invest Abroad: An Empirical Study’, Review of Economics and Statistics 54 (Aug., 1972).
Horst, T., American Exports and Foreign Direct Investments. Harvard University of Economic Research Discussion Papers, 362 (May, 1974).
Hufbauer, G. C., ‘The Impact of National Characteristics and Technology on the Commodity Composition of Trade in Manufactured Goods’, in R. Vernon (ed.) The Technology Factor in International Trade (New York: Columbia University Press, 1970).
Hufbauer, G. C. and Chilas, J. G., ‘Specialisation by Industrial Countries: Extent and Consequences’ in H. Giersch (ed.) The International Division of Labour Problems and Perspectives (Tubingen: JCB Mohr (1974).
Hymer, S., The International Operations of National Firms A Study of Direct Investment (Unpublished Doctoral Thesis M.I.T., 1960).
Hymer, S., ‘The Multinational Corporation and the Law of Uneven Development’ in J. Bhagwati (ed.) Economics and World Order (New York: World Law Fund, 1970).
Iversen, C., Aspects of International Capital Movements (London and Copenhagen: Levin and Munksgaard, 1935).
Johnson, H., Comparative Cost and Commercial Policy Theory for a Developing World Economy (Stockholm: Almquist and Wiksell, 1968).
Johnson, H., ‘The Efficiency and Welfare Implications of the International Corporation’ in C. P. Kindleberger (ed.) The International Corporation (Cambridge, Mass.: M.I.T. Press, 1970).
Knickerbocker, P. T., Oligopolistic Reaction and the Multinational Enterprise (Cambridge, Mass.: Harvard University Press, 1973).
Kojima, K., ‘A Macro-Economic Approach to Foreign Direct Investment’, Hitotsubashi Journal of Economics 14 (June, 1973).
Lake, A., Multinational Firms and the U.K. Pharmaceutical Industry. A Study of Innovation and Imitation Unpublished Paper (1975).
Lall, S., ‘Transfer Pricing by Multinational Manufacturing Firms’, Oxford Bulletin of Economics and Statistics 35 (Aug., 1973).
Leontief, W., ‘Domestic Production and Foreign Trade; the American Capital Position Re-examined’, Proceedings of the American Philosophical Society Vol. 97 (1953).
Leontief, W., ‘Factor Proportions and the Structure of American Trade; Further Theoretical and Empirical Analysis’, Review of Economics and Statistics 38 (1956).
Lipsey, R. E. and Weiss, M. Y., Multinational Firms and the Factor Intensity of Trade. National Bureau of Economic Research Working Paper No. 8 (1973).
MacDougall, G. D. A., ‘British and American Exports. A Study Suggested by the Theory of Comparative Costs’, Economic Journal 61 pp. 697–724 62 487–521 (1951 and 1952).
Magee, G. P., Information and the Multinational Corporation: An Appropriability Theory of Direct Foreign Investment. University of Texas, College of Business Administration Working Paper 77–11 (1976).
McManus, J. C., ‘The Theory of the Multinational Firm’, in G. Pacquet (ed.) The Multinational Firm and the Nation State (Toronto: Collier Macmillan, 1972).
Michalet, C., Multinational Enterprises and the Transfer of Technology Unpublished Paper for O.E.C.D. DAS/SPR/73. 64 (1973).
Muller, R., ‘Global Corporations and National Stabilization Policy: The Need for Social Planning’, Journal of Economic Issues 9 (June, 1975).
Mundell, R. A., ‘International Trade and Factor Mobility’, American Economic Review 47 (June, 1957) pp. 321–35.
Murray, R., ‘Underdevelopment, International Firms and the International Division of Labour’ in J. Tinbergen (ed.) Towards a New World Economy (Rotterdam: Rotterdam University Press, 1972).
Musgrave, P. B., Direct Investment Abroad and the Multinationals: Effects on the U.S. Economy. Prepared for the use of the Sub-Committee on Multinational Corporations of the Committee on Foreign Relations, U.S. Senate, Aug., Washington U.S. Government Printing Office (1975).
Nurkse, R., ‘Causes and Effects of Capital Movements’, (1933), reprinted in J. H. Dunning International Investment (Penguin Readings, 1972).
Ohlin, B., Interregional and International Trade (1933) (Cambridge, Mass.,: Harvard University Press; (rev. ed. 1967).
Orr, D., Foreign Control and Foreign Penetration in Canadian Manufacturing Industries Unpublished Paper (1973).
Parry, T. G., The International Location of Production: Studies in the Trade and Non-Trade Servicing of International Markets by Multinational Manufacturing Enterprise PhD. Thesis (University of London, 1975).
Reddaway, W. B., Potter, S. T. and Taylor, C. T., The Effects of U.K. Direct Investment Overseas (Cambridge (U.K.): Cambridge University Press, 1968).
Samuelson, P., ‘International Trade and Equalisation of Factor Prices’, Economic Journal, 58 (June, 1948).
Southard, F. A., American Industry in Europe (Boston: Houghton Mifflin Company, 1931).
Stopford, J., ‘Changing Perspectives on Investment of British Manufacturing Multinationals’, Journal of International Business Studies 7 (Fall/Winter, 1976).
Tilton, J. E., International Diffusion of Technology: The Case of Semiconductors (Washington D.C.: The Brookings Institution, 1971).
Vernon, R., ‘International Investment and International Trade in the Product Cycle’, Quarterly Journal of Economics 80 (1966) pp. 190–207.
Vernon, R., ‘The Location of Economic Activity’ in J. H. Dunning (ed.) Economic Analysis and the Multinational Enterprise (London: Allen and Unwin, 1974).
Weber, A., ‘Location Theory and Trade Policy’, International Economic Papers 8 (1958).
Williams, J. H., ‘The Theory of International Trade Reconsidered’, Economic Journal 39 (June, 1929).
Williamson, O. E., ‘The Vertical Integration of Production: Market Failure Considerations’, American Economic Review 61 (May, 1971).
Williamson, O. E., ‘The Economics of Internal Organisation: Exit and Voice in Relation to Markets and Hierarchies’, American Economic Review: Papers and Proceedings 66 (May, 1975).
Wolf, B., Internationalization of U.S. Manufacturing Firms. A Type of Diversification Unpublished Doctoral Dissertation (Yale University, 1971).
Editors and Affiliations
© 1977 The Nobel Foundation
About this chapter
Cite this chapter
Dunning, J.H. (1977). Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach. In: Ohlin, B., Hesselborn, PO., Wijkman, P.M. (eds) The International Allocation of Economic Activity. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-03196-2_38
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-03198-6
Online ISBN: 978-1-349-03196-2