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The economic theory of the firm as a foundation for international business theory

Casson, M. (2014) The economic theory of the firm as a foundation for international business theory. Multinational Business Review, 22 (3). pp. 205-226. ISSN 1525-383X

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To link to this item DOI: 10.1108/MBR-06-2014-0024

Abstract/Summary

The economic theory of the firm is central to the theory of the multinational enterprise. Recent literature on multinationals, however, makes only limited reference to the economic theory of the firm. Multinationals play an important role in coordinating the international division of labour through internal markets. The paper reviews the economic principles that underlie this view. Optimal internalisation equates marginal benefits and costs. The benefits of internalisation stem mainly from the difficulties of licensing proprietary knowledge, reflecting the view that MNEs possess an ‘ownership’ or ‘firm-specific’ advantage. The costs of internalisation, it is argued, reflect managerial capability, and in particular the capability to manage a large firm. The paper argues that management capability is a complement to ownership advantage. Ownership advantage determines the potential of the firm, and management capability governs the fulfilment of this potential through overcoming barriers to growth. The analysis is applied to a variety of issues, including out-sourcing, geographical dispersion of production, and regional specialisation in marketing.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:38249
Publisher:Emerald

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