Evolution Of Foreign Direct Investment Theory And Its Enlightenment To China

As the economic globalization and the investment liberalization deepening, the foreign direct investment has become the important bond of the world economic activity and contact. FDI as the most active factor of the economic development has a deep effect on the international political and economic relationship. Foreign Direct Investment is also known as overseas direct investment or transnational direct investment. And its unique sign is that investors have controlling their overseas business assets. The way of participation is mainly equity investment that means through the inputs of machine equipment, monetary or technology exchange for equity. FDI can make the international transfer and reconfiguration of the production elements, in order to improve the efficiency and utilization, and promote the world's economic development, strengthen economic connection. The Multinational Corporations (MNCs) have been developed rapidly through transnational business and merger. A network of production and sales all over the world has been formed, and it can promote the adjustment of industrial structure. China has the condition capability and need for FDI as the high-speed operation of economic growth and the change of economic structure. But we are short of system theory to guide the practice. The research of FDI theory is weak and still in the initial stage. Meanwhile the western theories are not suitable for China. So we need to summarize and learn from the FDI theory from abroad in order to acquire the enlightenment to China, which can direct Chinese FDI positively.FDI theories have been the hot topics of western academics for a long time. Through the evolution of FDI theories we can see that the source of thoughts and theory foundation can be traced down to the Mercantilism, Classical international trade, Marxism capital export and Neoclassical international capital movements. These theories have become the foundation and nutrition for the later FDI theories. After the Second World War, the unprecedented developments of FDI attracted the attention of theorists. Scholars from different countries started to research and explore one after another, and formed more than twenty theories differently. There are FDI theories of developed countries and those of developing countries. As the economic globalization FDI theories have made some new progress. Overall, all these FDI theories reflect the distinct feature of the age, and explain the phenomenon of FDI in some level. However, they are from different background so there is still short of a comprehensive theory system that can make general sense and impact widespread.This paper is an economic thoughts historical research of the evolution of FDI theories. Based on the tracing of economic thoughts, we sort out the evolution context of FDI theories according to historical development. Through the analysis, induction and summary of Mercantilism, Classical international trade, Marxism capital export, Neoclassical international capital movements, and the FDI theories of developed countries and developing countries since 1960s, we conclude the theories that suit for China in order to guide the practice. So this paper has positive theoretical and practical meaning.This paper is divided into eight chapters. Chapter One is introduction. Firstly, it gives the study object and its meaning. Secondly, it defines the conception of FDI, and its features, and the relationship with the TNCs. Thirdly, it reviews the research of FDI from western and Chinese academics. Finally, it introduces the structure, research methods, innovation and shortages of the paper. Chapter one is the foundation of the other parts.Chapter Two is the classical international trade theory. We trace the economic thought source of FDI theories according to the history clue. Firstly, as the natural economy becoming the commodity economy the Mercantilism which is the earliest international trade theory came out. And the economic thought of Thomas Mun had promoted capital accumulation, created the necessary conditions of capitalism mode of production. Secondly, Classical international trade theory came out, and it based on the traditional international labor division. Absolute advantage of Adam Smith, comparative advantage of David Ricardo, reciprocal demand principle of John Stuart Mill, they all developed and completed the international trade theory, and making an important meaning to FDI theories.Chapter Three studies the Marxism capital export theory that is based on Marxism international labor division. Firstly, Marx pointed that international labor division can make the capital flow between countries. Excessive capital made the capital export, and its motion was to pursue high profits. Secondly, Hobson, Hilferding, Luxemburg and Bukharin supplemented and developed the Marxism capital export theory. Thirdly, Lenin enriched and evolved Marxism capital export theory. As he was under the background of capitalism transferring from free competition into Monopoly, he discussed that the centralization of production and capital caused the monopoly, and capital export replaced of the goods export, besides the capital export had aggression and robbery nature. The development of investment made the monopoly league divide the world. In the end he gave some advices of using foreign capital to socialist countries.Chapter Four analyses the theory of international capital movements which is based on the classical international trade theory. Firstly it introduced the theory of international capital movements which is caused by the interest rate differences. Irving Fisher, Nurkse and MacDougall based on the comparative advantage, and brought out that interest rate differences between different countries make the capital flow. Secondly, it introduced the capital flow theories which are caused by other factors. Such as resource endowment theory of Heckscher and Ohlin,Mundell based on H-O model, and came up with the theory that investment and trade would substitute for one another. Chenery and Strout gave out the Two-Gap Model, and supported the developing countries using foreign capital to make up domestic shortage. Overall the capital flow theory based on neoclassical economy as their assumptions, and explained the FDI phenomena in some level.Chapter Five elaborates the FDI theories of developed countries, also known as the mainstream theory. Such as Monopolistic Advantage Theory by Hymer and Kindleberger, the production life cycle theory by Vernon, the Internalization Theory by Buckley and Casson, the investment theory of comparative advantage by Kojima, the Eclectic Theory of International Production by Dunning. They all explained the FDI activities of specific country in specific time. But there still is lack of an overall theory that has a worldwide influence.Chapter Six investigates the FDI theories of developing countries, such as relatively excessive accumulation of capital theory, small-scale technology theory by Wells, localized technological change theory by Lall, technology innovation and industrial upgrade theory by Cantwell and Tolentino, investment development path theory by Dunning. These theories analyses the comparative advantages of developing countries from different perspectives. And they can guide the FDI of developing countries in a meaningful way. So it is worth to learn by China.Chapter Seven discusses the new development of FDI under the age of globalization, such as the elements portfolio induced by investment theory, national competition advantages theory and globalization strategy of TNCs theory. Chapter Eight illustrates the enlightenment to China. Firstly, Chinese FDI should go to the optimized industries in order to adjust the domestic economy structure. Professional experts who are familiar with laws and legislations of the host countries should be imported or trained. The relationship of the FDI and export should be treated correctly. The government should plan the FDI as a whole. Secondly, China should make good use of FDI from abroad. Thus we can accelerate the transformation in the mid-west China, and optimize the structure of FDI to China. We also need to focus on the high-technology program of FDI.Finally is the conclusion of this paper. It summarizes the evolution and development clues of FDI theories, and comes up with the useful enlightenments to China in both Chinese FDI and making use of those FDI to China.