Technical Elements In The Foreign Direct Investment Flows

Modern multinational corporations are playing an important role in the international division of labor. They not only account for a large share in the volume of international trade, but also are the main participants in Foreign Direct Investment (FDI). However, the traditional theories have been unable to explain the new trends in FDI dominated by the multinational corporations.Reviewing the prevalent theories on international trade and FDI, this thesis discusses the necessity and possibility of separating the technology factor out from the traditional production factors. By letting the technology factor move across boundaries and recombine with other factors, this thesis explains how the technology factor and its movements cause FDI with models of production cost and distribution of factor reward.By introducing the concepts of Tacit Knowledge and Explicit Knowledge, this thesis also analyzes the process of spread and diffusion of knowledge from psychological perspective, and then summarizes the elements that determine the diffusion of the technology factor and its spillover effect in FDI. This thesis presents a model of diffusion to describe how the diffusion speed affects the multinational corporations'advantages in technology and monopoly rents.This thesis considers that technology diffusion and spillovers are ineluctable and eventually make the innovators lose their advantages in technology gradually. The multinational corporations who have the advantages in technology, however, can maintain their advantages as well as possible by implementing proper strategies, in order to acquire more returns.