Foreign Direct Investments Is An Essential Part Of...

Literature review Economists believe that Foreign Direct Investments is an essential part of economic evolution in every country. There are many academic papers that attempt to assess FDI aspects. Despite many researchers have tried to give an accurate explanation to FDI, there is no comprehensively approved theory. FDI motivations have been mainly researched by John Dunning, Stephen Hymer, Raymond Vernon, etc. The most important FDI theory until 1990 was The Eclectic Paradigm, which is also called the OLI framework, established by John Dunning during the 1970’s. As stated by him, a firm’s investment decisions critically depend on three essential factors: ownership, location and internalization. Therefore, companies will invest in other†¦show more content†¦Subsequently, Dunning added a new factor besides the other three ones- connection between FDI and the long-term strategy of the firm (Jones, Wren, 2006). On the other hand, John Dunning claimed that there are four types of FDI in terms of their motivations: resource seeking FDI, efficiency seeking FDI, market seeking FDI and strategic asset or capability seeking FDI. According to resource seeking FDI, companies invest in foreign countries with the purpose of acquiring resources of higher standard and at a smaller cost than in their own country. Examples of resources are raw materials, labor force, infrastructure (roads, telecommunication) and technological level (Dunning, 2008). As claimed by market seeking FDI, firms invest in a country with the purpose of supplying goods and services to the host country’s market. It highly depends on market size and products distribution channels. At the same time, efficiency seeking FDI has the aim to exploit greater availability and lower costs of all relevant components from foreign countries. Last, strategic asset seeking FDI is driven by the strategic goals in the long run of foreign fir ms such as encouraging and promoting their worldwide competitiveness or weakening their rivals (Wadhwa, 2011). If we analyse the FDI amount in Romania during 1990-2009, over 50% of it was concentrated in the secondary sector (manufacturing). So investors