ABSTRACT
This chapter presents a complementary institution-based perspective on Foreign Direct Investment (FDI) and extends the existing frameworks, based on the analysis of costs and benefits provided by institutions. It argues that multinational enterprises (MNEs) "shop around the world" to look for specific institutions that enhance firms' overall net institutional benefits. The chapter analyses two behaviors of shopping for institutions: avoiding misaligned institutions that incur institutional costs, and leveraging loopholes in the entanglement of institutions that provide institutional benefits. The eclectic paradigm, popularized as the ownership-location-internalization (OLI) framework, provides a theoretical framework on FDI with three analytical lenses: ownership, location, and internalization. The OLI framework explains FDI based on asset-seeking motives. MNEs undertake FDI in order to explore new market opportunities in different countries, to procure natural resources that are not obtainable in their home countries and to secure efficiency— with lower acquisition costs than those in the home country.
