User:Mrosa096/sandbox

One of the first scholars to engage in developing a theory of multinational companies was Stephen Hymer. Throughout his academic life, he developed theories that sought to explain foreign direct investment and why firms become multinational.

There were three phases in Hymer's work. The first phase was his dissertation in 1960 called the International Operations of National Firms. In this thesis, Hymer departs from neoclassical theory and opens up a new area of international production. At first, Hymer started analyzing neoclassical theory and the financial investment, wherein the main reason for capital movement is the difference in interest rates. Then, he started analyzing the characteristics of foreign investment by large companies for production and direct business purposes, calling this Foreign Direct Investment. By analyzing the two types of investments, Hymer distinguished financial investment from direct investment. The main distinguishing feature was control. Portfolio investment is a more passive approach, and the main purpose is financial gain, whereas foreign direct investment a firm has control over the operations abroad. So, the traditional theory of investment based on differential interest rates does not explain the motivations for FDI.

According to Hymer, there are two main determinants of Foreign Direct Investment (FDI) wherein an imperfect market structure is the key element. The first is the firm-specific advantages which are developed at the specific companies home country and, profitably, used in the foreign country. The second determinant is the removal of control wherein Hymer wrote: "When firms are interconnected, they compete in selling in the same market or one of the firms may sell to the other," and because of this "it may be profitable to substitute centralized decision-making for decentralized decision-making".

The second phase is his neoclassical article in 1968 that includes a theory of internationalization and explains the direction of growth of the international expansion of firms. In a later stage, Hymer went to a more Marxist approach where he explains that MNC as agents of an international capitalist system causing conflict and contradictions, causing among other inequality and poverty in the world. Hymer is the father of the theory of MNE", and explains the motivations for companies doing direct business abroad.

Among modern economic theories of multinationals and foreign direct investment are internalization theory and John H. Dunning's OLI paradigm. Dunning was widely known for his research in economics of international direct investment and the multinational enterprise. His OLI paradigm, in particular, remains as the predominant theoretical contribution to study international business topics. Hymer and Dunning are considered founding fathers of international business as a specialist field of study.