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- occur when a firm establish access to a specific resource needed in production that might be rare, expensive or non-existent domestically. Those resources might be raw materials, natural resources, low wage labor, etc.

Efficiency-seeking FDI - taking advantage of availability, costs of factors or economies of scale

Strategic asset-seeking FDI - usually high tech firms trying to acquire assets

Lall and Streeten (1977) instead use five major forces for MNCs to prefer FDI over exports.

FDI has cost advantages as exporting is both time consuming and cost money

Trade barriers can make FDI more attractive

In order to better serve its customers, a MNC can establish a subsidiary

As explained by the crown-in effect, one MNC investing in a country will impel its competitors to do the same

The product life cycle, looking for cheaper production, can also encourage FDI.

Drivers
Market size - Usually seen as the most important driver of market oriented FDI. Usually measured as GDP or GDP per capita (Zang, 2000)

Labor costs - The most relevant driver in resource oriented FDI. Usually measured as the quality of the human capital (Zang, 2000)

Political risk - Stability in the political environment is generally seen as a driver playing a major role in attracting inward FDI (Lankes, Venables, 1996)

Government incentive policies and trade openness - Governments actively trying to attract foreign investors have a positive correlation with attracting FDI (Shapior, Globerman, 2003)

Geographical and cultural closeness - Countries located close to the source market will generally attract more FDI as shown in Grosse and Trevino, (1996)

Infrastructure - More developed infrastructure means better production and distribution possibilities and thus generating more FDI (Li, 2005)

Interest rate and inflation - Despite research findings done by Li, (2005) showing an insignificant relation between inflation and FDI inflow, interest rates and inflation is generally seen as having a negative effect on attracting FDI as it might increase labor, production and cost of capital.

Agglomeration economies - Research on countries with a significant amount of FDI indicates that a larger amount of investments increases the chances for others to follow (Tseng, Zebregs, 2002)
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