Economic Theories of Transnational Corporations, Environment and Development

The point of departure of this essay is the notable lack of theory application to the study of TNCs, environment and development. In order to compensate for this problem, it is proposed that economic theories of international production could provide a suitable starting point for the generation of hypotheses regarding the environmental implications of FDI in LDCs. The main advantage of these theories is that they point out the environmental implications of TNCs qua their transnational nature. The essay presents the central theories of international production and outlines the environmental implications of those theories. A distinction between two approaches is made namely the macro approach and the micro approach. The macro approach embodies neoclassical trade economics, radical economics and ecological economics. Normative differences apart, they all predict an emerging international division of labor based on pollution. The micro approach embodies industrial economics and internalization theory. This approach questions the predictions advanced by the macro approach, seeking instead explanations for TNC internationalization behavior in propensities of the firm. In conclusion, an integrative approach to the study of TNCs, environment and development is presented based on the so-called eclectic paradigm. It is proposed that the eclectic paradigm offers an overall organizing framework for analyzing and explaining the various environmental implications of FDI in developing countries.