The theory of international investment includes the following eight theories: monopolistic advantage theory; internalization theory; product life cycle theory; international production trade-off theory; comparative advantage theory; international direct investment development stage theory; investment inducing factor combination theory; and complementary outward direct investment theory. Monopolistic Advantage" was first proposed by S. Hymer in 1960 in his doctoral dissertation "International Operations of Domestic Firms; A Study of OFDI" to explain the behavior of international direct investment by monopolistic advantage, and later by his supervisor C. Kindleberger and Kevorkian. Kindleberger and Caves (R Z. Caves), the earliest and most influential independent theory for the study of international direct investment.
Prerequisites and assumptions of monopoly dominance theory
The premise of monopoly advantage theory: the necessary condition for profitable foreign direct investment is that these enterprises should have monopoly advantage that host country enterprises do not have; and the monopoly advantage of multinational enterprises, in turn, stems from the incompleteness of the market.
1. Imperfect competition leads to imperfect markets, and imperfect markets lead to international direct investment.
Heimer and Kindleberger proposed and developed the "Structural Market Imperfection Theory" (Structural Market Imperfection), and the problem of imperfect competition is manifested in four aspects: imperfect competition in commodity markets; imperfect competition in factor markets; imperfect competition caused by economies of scale; and imperfect competition caused by economic systems and policies.
2. Monopoly advantage is the determinant of OFDI.
Analysis of the elements of advantage of monopoly advantage theory
According to Kevers' classification, these static advantage elements are mainly composed of two parts:
1.Knowledge asset advantage
Technological advantage; financial advantage; organizational and managerial advantage; raw material advantage.
2. Economies of scale advantage
Contributions and Limitations of Monopoly Advantage Theory Theoretical Contributions
【1】 Theoretical Contributions
(1) A new way of studying foreign direct investment is proposed;
(2) Proposed the difference between direct investment and portfolio investment;
(3) Advocated the study of OFDI by U.S. firms from imperfect competition;
(4) Shifted the study of international flows of capital from the circulation field to the production field, providing a basis for the development of other theories.
【2】Limitations of the theory
(1) Lack of dynamic analysis;
(2) The theory cannot explain why firms with exclusive technological advantages must invest directly in foreign countries rather than reap the benefits through exports or technology licenses;
(3) Although the theory provides a good theoretical explanation of OFDI by enterprises in developed countries and the two-way investment phenomenon among developed countries, it cannot explain the OFDI activities of many SMEs without monopoly advantages in developed countries and developing countries, which have been increasing since the late 1960s;
(4) Monopoly dominance theory also cannot explain the geographical layout of cross-border investment in the material production sector.
