3.2 Interdependence of OLI variables?
It has been suggested that it is misleading to suggest that the triumvirate of variables which make up the eclectic paradigm are independent of one another.
The policy implications of a decline in FDI which results from a reduction in the attractiveness of the former, are very different from those that reflect the strengthening competitive position of a country’s indigenous, relative to foreign owned, firms. An increase in outbound FDI due to the integration of markets allowing the better exploitation of the economies of common governance (e.g. as is encouraging more Pan European direct investment) flags a very different message to the governments of home countries than where such investment is driven out by uncongenial conditions in the domestic market (e.g. as was the case in India for most of the 1970s and early 1980s, South Africa and the Philippines in the mid- 1980s and Indonesia in the late 1990s).
Thus, as is set out more formally in the next sub-section, FDI based upon the O advantages of the investing firms in time t may well affect the L advantages of the host country in time t + 1; while the response of firms, by use of either a `voice’ or an `exit’ strategy, to market failure (Hirschman, 1970) and/or their choice of location for their innovating activities, might critically affect the shape of their future O advantages. Indeed, I would go further and suggest it is the successful coordination of the O advantages of foreign and domestic firms with their own L advantages, and how each affects and is affected by the modality of resource deployment, that determines the extent to which a particular country is able to sustain, or upgrade its wealth creating capacities over a period of time.