Reinvested Earnings in Foreign Direct Investment: A Comparative Analysis of Theoretical Frameworks and a Clarification of a Still Under-Conceptualized Dimension

Abstract

Reinvested earnings have become an important component of foreign direct investment (FDI) flows. Although a growing body of literature has examined profit allocation within multinational enterprises, it remains fragmented across financial, fiscal, and institutional perspectives, without clear integration into FDI theoretical frameworks. While these frameworks have primarily been developed to explain firms’ initial location decisions, the post-entry dynamics of reinvestment remain insufficiently conceptualized.

This article develops a comparative analysis of the main FDI theoretical frameworks—control theory, internalization theory, the eclectic paradigm (OLI), and New Institutional Economics—in order to assess their ability to account for reinvestment decisions.

The findings reveal a common focus on the entry phase and lead to the identification of an intermediate analytical space between entry and disengagement. The article conceptualizes reinvestment as a distinct phase in the trajectory of FDI and formulates theoretical propositions showing that this decision involves an intertemporal arbitrage and contributes to the consolidation of multinational firms’ productive engagement.

These results suggest that FDI attractiveness should be reconsidered not only in terms of initial inflows, but also in terms of countries’ capacity to retain and consolidate foreign investments over time.

Classification JEL : F21 ; F23

Paper type: Theoretical Research