ABSTRACT
The Analytical Framework The literature on international production, i.e. production financed by foreign direct investment,1 suggests that firms with headquarters in one country will set up and/or expand value adding activities outside their national boundaries whenever
The literature further identifies these advantages and some of these are set out in Table 3.1. Attention is especially drawn to the distinction between asset (or production) and common governance (or transaction cost minimising ownership advantages). From the perspective of a potential recipient country, the more a foreign firm possesses ownership advantages over its own firms, the more imperfect the market is for the transfer of these intangible assets between the exporting and importing country, and the more the foreign firm finds it attractive to deploy these assets to produce goods in the host rather than in the home (or indeed in another foreign) country, the more inward direct investment is likely to take place.
