An economic theory of FDI: A behavioral economics and historical approach

However, before presenting this behavioral economics model of FDI decisions, I discuss the problems that neoclassical economics faced in explaining the new reality of FDI/international production after World War II, when neoclassical economists utilized the unrelated arbitrage theory of portfolio flows to explain it. I do also Stephen Hymer's critique of that attempt, and his attempt to explain FDI decision, which helped it move outside of the realm of economics. I do also review and discuss the various FDI theories that emerged, after the 1960 dissertation of Hymer, in the works of Dunning, Buckley, Casson, Markusen, and others presented as transaction cost, internalization, and the eclectic theories of foreign direct investment. While praising the contributions of these theories, I argue that they are inferior to the behavioral economics based model I develop in this model.