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Economics Assignment 代写 The Existing Macroeconomic Theory

Economics Assignment 代写 The Existing Macroeconomic Theory

Hymer is the first economists and be the author of the concept of firm-specific advantages and theory of macroeconomic who try to find answer to the question that ‘Why MNEs?’ and ‘Why FDI?’, later on he then suggested that the three reasons behind are conflict removal, gain more profit from foreign location and involve in controlling the overseas assets (Dunning and Pitelis, 2009). He then emerge the concept of firm specific advantage or ownership advantages that can be find in imperfect market and concentrated market as a tool to overcome lots of barrier to being a foreign.

However, Dunning and Rugman (OEHLER-ÅžINCAI, 2011, Dunning and Rugman, 1985) argue that Hymer overlooks the transaction costs so he overemphasize the market-power advantages of MNE and market failure as transaction costs are also important. He also miss the point that the main purpose of MNE is not just three reasons mentioned above, MNE also do FDI for market seeking, resource seeking, efficiency seeking, knowledge seeking, gaining advantages from transfer prices and so on (Pearce, 2012). While Yamin (Yamin, 2000) point out that part of Hymer’s ownership advantages is actually location advantages for example; Hymer mentioned that American firms are getting the access to US capital market as well as get access to US labour market easier compared to foreign firms. This implies that Hymer also count country factors into his work, and make elements of macroeconomic fit into the microeconomic theory, it is not completely microeconomic theory. As Hymer views advantages as assets that can be bought and sold in market, Yamin argue that in highly imperfect market some assets are non-tradable for example skills and capabilities that already tied in the infrastructure and culture of the firms.

In 1977, Dunning re-oriented as well as fill the gap tin the work of Hymer, which he thinks it was uncompleted and proposed the eclectic framework consisting of ownership advantages, location advantages and internalisation advantages with taken both microeconomic theory of FDI and macroeconomic theory of FDI into account. Dunning define country-specific advantages such as labour costs, available resources as location advantages. Focusing to ownership advantages, Dunning then separate ownership advantages into asset ownership advantage (Oa) and transaction ownership advantages (Ot). Asset ownership advantages include both intangible and tangible assets, such as management practices, technologies, firm reputation, and knowledge. While transaction ownership advantages include ability of firms to coordinate and communicate with multiple cultures, perform value-adding activities and reduce transaction costs that occurs during FDI. Dunning also make ownership advantages become a very important element of the new theory of multinational enterprise because ownership advantages represent unique firm-specific advantages that make firms become MNE and be competitive in foreign market (Dunning and Lundan, 2008).

In conclusion, the macroeconomic or existing theory of FDI is inadequate as Hymer point out four facts that were not compatible with the theory including FDI did flow to capital rich countries and can flow between two countries, one country can export and import FDI at the same time, level of outward FDI are varied, and situation that no capital movement. Firms become MNE because of many reasons including resource seeking, knowledge seeking, efficiency seeking, marketing seeking, and controlling overseas assets. However, MNE does not likely to exist if the market is perfectly competitive because all firms are identical and foreign firms will be driven out. In imperfect market and concentrated market including oligopoly, MNE does exist because of ownership advantages to overcome barrier and cost of being a foreign. However, the work of Hymer was criticised as incomplete work. Dunning then re-orientated the Hymer’s analysis and come up with OLI eclectic framework that include both macroeconomic and microeconomics elements, and transaction cost into account. Ownership advantage was count as one of the most important elements in OLI eclectic framework and is a key element for firms to become MNE.

Economics Assignment 代写 The Existing Macroeconomic Theory

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