Do we need a special theory of foreign direct investment for extractive industries?
| Date | 06 June 2008 |
| Published date | 06 June 2008 |
| DOI | https://doi.org/10.1108/17544400810884682 |
| Pages | 93-104 |
| Author | Peter J. Buckley |
| Subject Matter | Economics |
Do we need a special theory of
foreign direct investment for
extractive industries?
Peter J. Buckley
Leeds University Business School, The University of Leeds, Leeds, UK
Abstract
Purpose – The purpose of this paper is to examine the extent to which we require a special theory of
foreign direct investment (FDI) for extractive industries.
Design/methodology/approach – The paper examines the general theory of FDI using
internalising theory and location theory and augments this by using special features that apply to
the extractive industries including the obsolescing bargaining argument.
Findings – The paper shows that a special theory is clearly required to explain the particular
circumstances of extractive industries. However, the received theory relying on internalisation and
location elements performs well.
Practical implications – Despite the current issues aroun d extractive industries and its
peculiarities, analysis of the reasons for FDI (including Chinese FDI) remains explicable by
standard theory.
Originality/value – FDI in the extractive industry provides a good test of the general theory of FDI
and a special theory nested within this gives a great deal of insight into current issues of FDI in
extractive industries.
Keywords Internationalinvestment,Direct investment,Multinational companies,Extractive industries,
Vertical marketing
Paper type Research paper
Introduction
In view of the current (2008) boom in commodity prices and China’s massive appetite
for raw materials, it is worth revisiting the story of the multinational enterprise (MNE)
(Buckley and Casson, 1976) to review the extent that a special theory is required to
account for the particular circumstances of extractive MNEs. To that end, the first part
of this paper reviews the general theory of the MNE. This is followed by a more
detailed analysis of two examples of extractive industries – the tin and copper sectors
(taken from Casson (1986)) to demonstrate that different parts of the extractive
industries have very different factors at work. The paper then turns to special features
of extractive industries – elements of bargaining, risk factors, and the nature of
“lumpy” investment that suggest special explanations are necessary (including the
“obsolescing bargain” in the relationship between state and firm). The paper then
reviews current issues – extreme competition for resources, mergers and acquisitions
(M&As) and China’s entry as a key player in the extractive industries. The conclusion
returns to the question of the special nature of the extractive industries and the
necessity for non-conventional theoretical explanation.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1753-4408.htm
A special theory
of FDI?
93
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 1 No. 2, 2008
pp. 93-104
qEmerald Group Publishing Limited
1753-4408
DOI 10.1108/17544400810884682
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