100 / 2015-12-10 20:52:53

On the General Incentive of Enterprise’s Foreign Direct Investment: Perspective of Spatial Economics and Business Location Decision

Many economists have investigated incentives of foreign direct investment since Hymer proposed monopolistically competitive theory in 1960. However, most of the economists neglects the basic constraints of space on firms and may even have some logic paradox. The paper aims to investigate the general incentive of FDI in the perspectives of spatial economy. It is suggested in the paper that spatial cost consists of transportation cost, time cost and the extra information cost due to distance and it is very important for a firm to choose a proper location. While the internal and external environment changes, the spatial cost at the initial location would inevitably increase and then the firm should shift its location accordingly. FDI occurs when the proper locations spread to countries beyond the home country. In other words, FDI is a natural outcome of location spread of firms. The author argues that the establishment of a foreign subsidiary is not essentially different from that of a branch in home country. The paper also takes iron and steel as well as beverage companies as cases for analyzing the general mechanics of FDI and finally proposes some statistics from UNCTAD to support the conclusions of the framework.