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Eclectic Paradigm

Definition

The eclectic paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework. It is a further development of the internalization theory and published by John H. Dunning in 1979.

What is an 'Eclectic Paradigm'

An eclectic paradigm is a theory that provides a three-tiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment (DFI). The eclectic theory paradigm is based on the assumption that institutions will avoid transactions in the open market when internal transactions carry lower costs.

Explaining 'Eclectic Paradigm'

For a direct investment in a foreign country to be beneficial, there must be a comparative advantage, an ownership advantage and an internalization advantage. The eclectic paradigm is considered a holistic approach, based on examining the entirety of the relationships and interactions of the various components. It provides a process to determine an organization’s strategy regarding the expansion of its operations through foreign direct investments.

Three Key Factors of the Eclectic Paradigm

Three main factors are considered as part of the eclectic paradigm analysis. The first goal is to determine if there is a comparative advantage to performing certain functions within a particular nation. Often, these considerations are fixed in nature; they apply to the availability and costs of resources when functioning in one location over another.


Further Reading


The eclectic paradigm as an envelope for economic and business theories of MNE activity
www.sciencedirect.com [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …

Reappraising the eclectic paradigm in an age of alliance capitalismReappraising the eclectic paradigm in an age of alliance capitalism
link.springer.com [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …

The eclectic paradigm of international production: a restatement and some possible extensionsThe eclectic paradigm of international production: a restatement and some possible extensions
link.springer.com [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …

The future of Russian outward foreign direct investment and the eclectic paradigm: What changes after the crisis of 2008-2009?The future of Russian outward foreign direct investment and the eclectic paradigm: What changes after the crisis of 2008-2009?
papers.ssrn.com [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …

Reappraising the eclectic paradigm in an age of alliance capitalismReappraising the eclectic paradigm in an age of alliance capitalism
books.google.com [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …

Foreign “direct” and “portfolio” investment in real estate: an eclectic paradigmForeign “direct” and “portfolio” investment in real estate: an eclectic paradigm
www.aresjournals.org [PDF]
… of interdependent variables — which, themselves, comprise the components of three sub-paradigms … changes in the boundaries, constraints and structure of the eclectic paradigm over the … the deepening integration of international economic and financial activity, including that …



Q&A About Eclectic Paradigm


Who developed the eclectic paradigm?

John Dunning.

What does "comparative advantage" mean?

Comparative advantage means that one country has better access to resources than another country.

What does the eclectic paradigm study?

The eclectic paradigm studies international business activities, notably foreign direct investment and multinational enterprises.

What are the three main factors considered as part of the Eclectic Paradigm analysis?

The three main factors considered as part of the Eclectic Paradigm analysis include whether or not there is a comparative advantage, availability and costs of resources, and fixed nature considerations.

When was his first book published?

In 1958.

What is the Eclectic Paradigm?

The Eclectic Paradigm or OLI-ModelFramework.

How does the eclectic paradigm work?

The eclectic paradigm works by considering internal transactions when determining if there are comparative advantages in performing certain functions within a particular nation.

What was John Dunning's first book about?

American Investment in British Manufacturing Industry (1958).

What is an eclectic paradigm?

An eclectic paradigm is a theory that provides a three-tiered framework for determining if it is beneficial to pursue direct foreign investment.

Why do institutions avoid transactions in the open market when internal transactions carry lower costs?

Institutions avoid transactions in the open market because they carry higher costs than internal transactions.