The eclectic paradigm, also known as the OLI Model or OLI Framework (''OLI'' stands for ''Ownership'', ''Location'', and ''Internalization''), is a theory in economics.
It is a further development of the
internalization theory Internalization theory is a branch of economics that is used to analyse international business behaviour.
Outline
Internalization theory focuses on imperfections in intermediate product markets. Two main kinds of intermediate product are distin ...
and published by
John H. Dunning
John Harry Dunning (26 June 1927 – 29 January 2009) was a British economist and is widely recognised as the father of the field of international business. He researched the economics of international direct investment and the multinational ...
in 1979. Modern Trade Theory incorporates this paradigm using the Grossman-Hart-Moore
Theory of the firm
The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market. Firms are key drivers in econ ...
* Ownership advantages
specific advantages refer to the competitive advantages of the enterprises seeking to engage in
Foreign direct investment
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct co ...
(FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production.
* Location advantages
[Gray, H. Peter (2003). "Extending the Eclectic Paradigm in International Business: Essays in Honor of John Dunning"; Edward Elgar Publishing] Locational attractions refer to the alternative countries or regions, for undertaking the value adding activities of multinational enterprises (MNEs). The more the immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to augment or exploit their specific advantages by engaging in FDI.
* Internalization advantages
Firms may organize the creation and exploitation of their core competencies. The greater the net benefits of internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather than license the right to do so.
Sources
{{DEFAULTSORT:Eclectic Paradigm
International economics