Internalization theory of FDI

Question

Explain internalization theory of the FDI. Specify the strength and weakness of this theory?

Answer 1

As per theory of the internalization, firms which have intangible assets with the public good property undertake the FDI to take the benefit of assets on the large scale and, simultaneously, avoid the misappropriation of returns from assets which may happen during the arm’s length transactions in the foreign countries. Theory may be effective in explaining the green field investments, however not in elucidating the mergers and acquisitions.