REVIEW Pergamon International Business Review 9(2000)163-190 www.elsevier.com/locate/ibusrev The eclectic paradigm as an envelope for economic and business theories of MNE activity John H.Dunning Reading University.UK and Rutgers University.USA Abstract This n the eclectic and busi- ness theories It sug ests that by dynamizing the paradigm,and widening it to embrace asset- augmenting foreign direct investment and MNE,activity it may still claim to be the dominant paradigm explaining the extent and pattern of the foreign value added activities of firms in a ntensive and allance based market cconomy.2000 Elsevier science paradigm:Foreign direet investment,Multinational enterprise 1.Introduction:the contents of the eclectic paradigm For more than two decades,the eclectic(or OLI)paradigm has remained the dominant analytical framework for accommodating a variety of operationally testable economic theories of the determinants of foreign direct investment(fdi)and the foreign activities of multinational enterprises(MNEs).2 The eclectic paradigm is a simple,yet profound,construct.It avers that the extent, geography and industrial composition of foreign production undertaken by MNEs is determined by the interaction of three sets of interdependent variables-which, themselves,comprise the components of three sub-paradigms.The first is the com- As described,for example.in Caves ()and Dunning (193).For the purposes of this article we use fdi and international production,viz.production financed by fdi,as interchangeable terms. International Business Review 9 (2000) 163–190 www.elsevier.com/locate/ibusrev The eclectic paradigm as an envelope for economic and business theories of MNE activity John H. Dunning Reading University, UK and Rutgers University, USA Abstract This paper updates some of the author’s thinking on the eclectic paradigm of international production, and relates it to a number of mainstream, but context-specific economic and busi￾ness theories. It suggests that by dynamizing the paradigm, and widening it to embrace asset￾augmenting foreign direct investment and MNE, activity it may still claim to be the dominant paradigm explaining the extent and pattern of the foreign value added activities of firms in a globalizing, knowledge intensive and alliance based market economy.  2000 Elsevier Science Ltd. All rights reserved. Keywords: Eclectic paradigm; Foreign direct investment; Multinational enterprise 1. Introduction: the contents of the eclectic paradigm For more than two decades, the eclectic (or OLI1 ) paradigm has remained the dominant analytical framework for accommodating a variety of operationally testable economic theories of the determinants of foreign direct investment (fdi) and the foreign activities of multinational enterprises (MNEs).2 The eclectic paradigm is a simple, yet profound, construct. It avers that the extent, geography and industrial composition of foreign production undertaken by MNEs is determined by the interaction of three sets of interdependent variables — which, themselves, comprise the components of three sub-paradigms. The first is the com- 1 Ownership, Location and Internalization. 2 As described, for example, in Caves (1982, 1996) and Dunning (1993). For the purposes of this article we use fdi and international production, viz. production financed by fdi, as interchangeable terms. 0969-5931/00/$ - see front matter  2000 Elsevier Science Ltd. All rights reserved. PII: S 09 69 -5931(99)00035-9