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4 Main Theories of Foreign Direct Investment (FDI)

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Foreign Direct Investment (FDI) Theories Foreign direct investment (FDI) theories are means to understand the environment of international investment in different countries. The four main theories of FDI are mentioned below: Monopoly Theory of Advantage The monopoly theory of advantage states that the investing firm possesses a relative monopolistic advantage abroad against the competitive local …

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7 Main Theories of International Trade/Business (Explained)

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Theories of International Trade International trade theories are the base for a person, firm, and nation to understand how are international trades or businesses. They help to understand how is the international market, what factors hinder companies from success, and how a company will make its share in the international market. Behavior and motivation of …

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New Trade Theory: Definition, Meaning, Assumptions, and Key Points

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What is New Trade Theory? The New Trade Theory (NTT) is an international trade theory developed by Paul Krugman, a Nobel prize winner that explains the two main points economies of scale and first-mover advantage. NTT emerged in the late 1970s, and a number of economists pointed out the ability of firms to attain economies of …

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Porter’s National Competitive Advantage Theory (Explained)

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Theory of National Competitive Advantage: Porter’s Diamond Porter’s national competitive advantage theory is an international trade theory that explains why a nation achieves success in the international market (trade, business, and competition) and why others do not. This theory is also known as Porter’s international trade theory, Porter’s diamond model, and national competitive advantage. In …

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Raymond Vernon’s IPLC Theory: Meaning, Stages, Application, and Criticisms

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What is IPLC Theory? Prof. Raymond Vernon developed the International Product Life Cycle (IPLC) theory in 1966. He explained how a product produced in the home country gets international market and starts exporting and ultimately how the international market force the home country to start importing. According to Vernon, demand for new innovative products grows …

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Heckscher-Ohlin's Factor Endowment Theory

Factor Endowment Theory: Meaning, Assumptions, and Criticisms

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Heckscher-Ohlin’s Factor Endowment Theory Heckscher-Ohlin’s Factor Endowment Theory also called Heckscher-Ohlin Model, H-O Model, Factor Endowment Theory, and Factor Proportion Theory is an economic as well as international trade theory that states that a nation should produce and export products for which factors of production the country is rich. Factor endowment refers to the richness, …

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Comparative Cost Advantage: Meaning, Assumptions, Example, and Criticisms

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What is Comparative Cost Advantage? Comparative cost advantage can be defined as the advantage a nation gets in the production of goods and services comparatively high whether the production of both products has an absolute advantage or absolute disadvantage. In 1817, Prof. David Ricardo further pushed the absolute cost advantage theory of Adam Smith with …

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Adam Smith's Theory of Adam Smith's Absolute Cost Advantage Theory

Absolute Cost Advantage: Meaning, Theory, Example, Assumptions, and Criticisms

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What is Absolute Cost Advantage? Absolute cost advantage can be defined as the ability of the nation to produce more products with lower costs and resources more efficiently than the other nation. Absolute advantage is achieved when a nation has the capacity to produce more goods than another nation with the same amount of input. …

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What is Mercantilism? Meaning, Theory, Key Points, and Criticisms

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What is Mercantilism? Mercantilism emerged, came into practice, and developed between 1500 to 1770 AD it was systematically developed by an Italian Economist, Antonio Serra. Mercantilism is an economic theory as well as an international business/trade theory. Mercantilism is the starting point of the development of the international business which was initially originated in French …

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Advantages and Disadvantages of Globalization

10 Advantages and 6 Disadvantages of Globalization (Explained)

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Advantages and Disadvantages of Globalization Globalization is the global phenomenon that has increased the movements of goods, services, capital, technology, and ideas beyond the national boundaries and created interdependency. Being global phenomenon globalization provides various advantages as well as disadvantages globally to the nations, businesses, and people. Some of the pros and cons of globalization …

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