on the grounds that if quality control and transfer pricing are sufficient, then ownership advantage cannot be necessary. Dunning argued that the firm’s ability to internalise could also be described as an ownership advantage, which led internalization theorists to suggest that his concept of ownership advantage had become tautological. Internalization theory is related to transaction cost theory through common dependence on the seminal work of Ronald Coase. They are not the same however. Internalization theory focuses on links between R&D and production whereas transaction cost theory focuses on links between one production facility and another. Transaction cost theory typically attributes market imperfections to bounded rationality and ‘lock in’, whilst internalization theory emphasises asymmetric information and weaknesses in property rights. Transaction cost theory is typically applied in a domestic context, whereas internalization theory was developed specifically for an international context. Links to international business theory Prior to internalization theory, the study of international business was largely focused on the environment, and in particular the economic, financial, political and cultural dimensions of doing business abroad. Internalization theory provided a theory of the international firm and thus augmented the international business field by demonstrating the interaction between the external environmental and the internal knowledge flows between MNE parent firm and subsidiaries. This interaction between external country-specific advantages (CSAs) and internal MNE firm-specific advantages (FSAs) is the nexus for strategic managerial international business decisions. Policy implications The view that multinationals transfer technology and not capital provided a major boost to the process of globalisation. The United Nations Conference on Trade and Development (UNCTAD) was strongly influenced by internalization theory and the eclectic paradigm. It persuaded political leaders to encourage inward investment as a source of the new technologies required for economic development, thereby reversing their previous attitudes. Multinational profits were increasingly viewed as payments for knowledge and technology rather than as interest paid on capital, and foreign ownership became accepted, in certain cases, as a necessary safeguard for foreign investors’ intellectual property. References Macroeconomic theories