Dunning J.H (2015)

Question 1

Electic Paradigm (OLI Framework)

Answer 1

A general framework explaining foreign direct investment (FDI) based on three advantages: Ownership (O), Location (L), and Internalization (I).

Question 2

Ownership Advantages

Answer 2

Firm-specific assets such as technology, brand reputation, economies of scale, and managerial expertise that give a competitive edge when expanding internationally. These advantages compensate for the additional costs of operating in a foreign market.

Question 3

Oa (Assest) and Ot (Transnational)

Answer 3

Oa (Asset-Based) refers to firm-specific tangible and intangible assets like patents, technology, and brand reputation. Ot (Transaction-Based) focuses on a firm’s ability to efficiently manage and internalize transactions, reducing costs and risks in international operations. Both give MNEs a competitive edge in foreign markets.

Question 4

Location Advantages (L)

Answer 4

The benefits of investing in a particular country, such as access to resources, skilled labor, strong intellectual property protections, or proximity to markets. Location factors influence where firms choose to establish operations.

Question 5

Internalization Advantages (I)

Answer 5

The decision to conduct transactions within the firm rather than through external markets. Internalization reduces risks, transaction costs, and inefficiencies, ensuring better control over resources and proprietary assets.

Question 6

The Aliber Theory of FDI

Answer 6

A theory suggesting that differences in currency valuation and capital market structures influence foreign direct investment. It focuses on financial market imperfections rather than firm-specific advantages.

Question 7

Extension of the Eclectic Paradigm

Answer 7

Extension of the Eclectic Paradigm
Back: Dunning suggested that the framework could be extended by incorporating strategic management theories, behavioral economics, and game theory to better explain multinational enterprise (MNE) behavior.

Question 8

Criticisms of the Eclectic Paradigm

Answer 8

Critics argue that the paradigm is too broad, lacks predictive power, and does not fully account for firm-specific strategic behavior. Some also say it combines multiple theories without a clear focus.

Question 9

How does the eclectic paradigm differ from the Heckscher-Ohlin model of trade?
a) The eclectic paradigm focuses only on labor and capital endowments
b) The eclectic paradigm considers firm-specific advantages, while the Heckscher-Ohlin model emphasizes country-specific factors
c) The eclectic paradigm assumes that trade occurs in perfectly competitive markets
d) The Heckscher-Ohlin model accounts for transaction costs, while the eclectic paradigm does not

Answer 9

b.

Question 10

According to Dunning, which of the following is a key component of the eclectic paradigm?

Select one alternative:

Game theory
Transaction cost economics
Behavioral economics

Answer 10

✅ Transaction cost economics

Dunning’s eclectic paradigm incorporates transaction cost economics, as it explains why firms internalize certain operations instead of relying on external markets. This is reflected in the Internalization (I) advantage of the OLI framework.

Question 11

What does Dunning predict about the future of IB research?

Select one alternative:

a. It will shift towards a focus on transaction cost analysis
b. It will phase out the eclectic paradigm
c. It will incorporate more interdisciplinary and dynamic approaches

Answer 11

c.