ABSTRACT
This chapter explores the development of Foreign Direct Investment (FDI) theory in the 1960s, as it moved from being linked with standard neoclassical theories of capital towards an independent theory. It discusses the relative merits of the theories, how applied to explain contemporary global patterns of FDI and how updated and adapted to explain the most recent boom in FDI. The importance of Stephen Hymer in the initial development of theory is discussed. The theory emerged in 1960, when Hymer attempted to give FDI its own place in the literature and study on the international operations of national firms is one of the cornerstone theories of FDI. The literature has taken on-board developments in economic thought, such as theories of industrial organisation and transaction costs. It is given expression in Dunnings over-arching eclectic paradigm of FDI, which not only encompasses ownership and internalisation advantages of multinational enterprise, but the role that location plays in a firm's decision to invest abroad.
