According to Graham and Krugman(1995), `` explanations of FDI generally fall into one of two categories: cost-of-capital explanations, which tie FDI flows to international capital flows generally, and industrial-organization explanations, which see FDI as directed by corporate strategy rather than capital movements''.
The following FDI model is based on both explanations. It belongs to the former cost-of-capital explanations in ways that the following theoretical model sees FDI as international capital flows from home firms in Japan to host firms in North America.
It belongs to the latter industrial organization explanations in ways that the following model is based on dynamic optimizations of the Japanese multi-nationals.