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From United Nations University
8. Empirical testing of theories of international production

8.1 Introduction

   a) factors which affect the form of theory testing
     i) the theoretical approach - industrial organization, location,
        financial, eclectic, etc.
    ii) the type of international production - import substitution,
        export oriented, resource based, rationalised, conglomerate
        diversification, etc.
   iii) the method of identifying and estimating explanatory
        variables - field studies, multiple regression, variance,
        cluster and discriminant analysis

   b) distinctions between economic and business/behavioural/strategy
      type studies;
      also between dependent variables to be explained e.g. foreign
      production as proportion of all foreign sales (i.e. exports plus
      foreign production);
      the share of local production accounted for by foreign 
      the distinction of FDI by countries;
      difference in the patterns of FDI according to country of
      ownership etc.

   c) Static (or comparative static) e.g. cross-sectional models,
      and dynamic e.g. time series models

8.2 Empirical testing 1950 - early 1970s
   a) 1950s and 1960s: empirical focus on location/import substitution/
      field studies of US TNCs

   b) late 1960s and 1970s
     i) industrial organization/import substituting/regression or
        variance analysis; most of these studies tended to be
        bi-country e.g. US investment in the UK; Canadian investment
        in the US
    ii) locational/time-series and cross section/regression and
        discriminant analysis
   iii) the application of risk diversification and capital theory to
        explain geographical distribution of portfolio of TNCs
    iv) oligopolistic strategy: the "bunching" of FDI activity/regression
        or variance analysis

   c) growth of empirical studies of non-US (especially Japanese)
      TNC activity

8.3 Empirical testing -the later 1970s
   a) more sophisticated econometric testing of the 8.2b) variety

   b) the eclectic and internalisation models; the investment
      development cycle/cluster and regression analysis (Dunning, 1981)

   c) multiple country and cross-sector empirical studies (Clegg 1987)

   d) factors influencing choice of entry modes into foreign markets
      (Anderson and Gatignon 1986, Davidson and McFetridge 1985)

   e) how forms of TNC involvement vary with stage of economic
      development (Contractor 1980); the attributes of TNCs from
      developed cf. those from developing countries (Lall 1983)

   f) the significance of specific OLI variables e.g. incentives,
      labour costs, transport costs, etc. affecting inward and
      outward FDI (Root and Ahmed 1978)

   g) business analysts have begun to analyse the industry's firm
      factors likely to influence the strategic reaction of firm
      to outside variables ((Ghoshal 1987)

   Because of paucity of statistical data of TNC activity in 
   developing countries, there has been little formal testing of
   theories of international production from the viewpoint of such
   countries. But see Kumar (1990)

8.4 Some examples of testing the theories of international production:
    a developing country perspective

8.5 Empirical testing -the 1980s and the 1990s

   a) World Investment Report 1991: The Triad in Foreign Direct
      Investment (1991)

   b) World Investment Report 1992: Transnational Corporations
      as Engines of Growth (1992)

   c) World Investment Report 1993: Trasnational Corporations and
      Integrated International Production (1993)

   d) World Investment Report 1994: Transnational Corporations,
      Employment and the Workplace (1994)

   e) World Investment Report 1995: Trasnational Corporations and
      Competitiveness (1995)

   f) World Investment Report 1996: Investment, Trade and International
      Policy Arrangements
Porter(1986) Knickerbocker(1973) Graham(1978,1980)
See Bibliography