EVOLUTION OF FOREIGN DIRECT INVESTMENT THEORIES: FROM CLASSIC CONCEPTS TO MODERN ADAPTATIONS

Abstract

This article comprehensively examines the evolution of theoretical approaches to analyzing Foreign Direct Investment (FDI), tracing their development from classical foundations to modern adaptations within the context of the digital-green transformation. It provides a critical analysis of the key theories that have shaped the understanding of international investment activity, including K. Akamatsu’s "flying geese" paradigm, R. Vernon’s product life cycle theory, S. Hymer’s theory of oligopolistic advantage, C. Kindelberger’s imperfect markets theory, P. Buckley and M. Casson’s internalization theory, M. Porter’s diamond of national competitive advantage, and J. Dunning’s eclectic paradigm (OLI). The study argues that while these classical theories retain historical significance, they exhibit considerable limitations in explaining the contemporary realities of the European Union (EU), where digitalization, the green transition, and deep market integration are redefining investment priorities. The paper substantiates the necessity of adapting traditional models to these new imperatives, culminating in the proposition of an original Digital-Green OLI (DG-OLI) model. This framework reconceptualizes the traditional ownership (O), location (L), and internalization (I) advantages to align with the EU's digital and green agendas, emphasizing digital-green firm competencies, institutional-innovative country attractiveness, and the strategic internalization of key technologies to ensure technological sovereignty. Significant attention is devoted to Dunning and Narula’s "investment development path" (IDP) theory, which effectively elucidates the evolution of EU member states from capital importers to active capital exporters. Employing a systematic and comparative analysis, the research finds that contemporary investment activities within the EU are increasingly determined by institutional incentives, a favorable regulatory environment, and innovation capacity, rather than by traditional economic factors alone. The conclusion posits that a synthesis of the eclectic OLI paradigm, enhanced by the DG-OLI model, and the IDP theory provides a robust foundation for analyzing the role of EU member states in global investment flows and for crafting effective investment policies in an era of global uncertainty and transformative change.