Competitive Advantage and Foreign Direct Investment: Britain, 1913-1938

The most compzehensive theozefical ttempt o link advantage with the fozeign direct investment (FDI) decision has been made by John Dunning in his eclectic fzamewozk. A country's accumulated FDI stock is shown to depend on three sets of advantage, toindicate zespecfively the :why, :where, and ho:w of the FDI pzocess. These are the ownezship oz competitive advantages njoyed by firms oyez rivals at home oz oyezseas; the location advantages that stand to reinfozce those of ownezship; and the intemalizafion advantages of opezating pzoductive assets within the finn rathez than selling oz licensing them to fozeign finns [Dunning, 1988, pp. 29ff.; Coffey, 1992, p.9]. In Dunning's paradigm, such ownezship, location, and intemalization advantages can be studied at the country, industry, oz finn level. The countryspecific advantages may arise fzom factoz endowments and the size of the domestic mazket. Likewise, location advantages tend to be influenced by physical or psychical nearness oz distance, and by the amount and quality of resources, uch as primary products and skilled oz unskilled laboz, available in the zecipient oz host country. This fzamewozk should help to focus the thoughts of zesearchezs studying British outward FDI during the first half of the twentieth century. An earliez inquiry, into the zelafionship between comparative advantage and oyezseas trade in Britain foz this period, expzessed that zelafionship in terms of human capital [Czafts and Thomas, 1986, pp. 629-45]. Heze, advantage has to be gauged by othez measures. Fixst of all, its national stock of outward FDI needs to be estimated foz appzopriate dates during this half-century. The bzeakdown i to industrial g•oups (including services) hould indicate wheze the industry-specific advantages lay. The location advantages will have to be investigated ata future time. The years chosen foz these estimates are 1913, 1929, and 1938. An introductory discussion is necessary on what FDI is all about, and then the methods of comp'Ring these estimates aze explained. These are covezed in the two following sections.