Question

*Using relevant examples, explain the strengths and weaknesses of the Hegemonic Stability Theory.

Answer 1

According to the internalization theory, firms that have intangible assets with a public good property tend to undertake FDI to take advantage of the assests on a large scale and, at the same time, prevent misappropriation of returns from the assests that may occur during arm's length transactions in foreign countries. The theory can be effective in explaining Greenfield investments, but not in explaining mergers and acquistions