The difference between Internalization theory and imitative theory is that:
A)internalization theory does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.
B)imitative theory addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad.
C)most economists favor imitative theory as an explanation for FDI.
D)no important aspect of FDI is explained by imitative theory.
E)internalization theory addresses the issue of efficiency of FDI over exporting or licensing.

Question

Quizplus · Accepted Answer

Although Knickerbocker's theory and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries, it does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license. Internalization theory addresses this phenomenon. The imitative theory also does not address the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. Again, internalization theory addresses the efficiency issue. For these reasons, many economists favor internalization theory as an explanation for FDI, although most would agree that the imitative explanation tells an important part of the story.

The Difference Between Internalization Theory and Imitative Theory Is That