Stephen Herbert Hymer's 1960 thesis, "The International Operations of National Firms: A Study of Direct Foreign Investment," examines why firms invest directly in foreign countries rather than through portfolio investments. Hymer argues that the traditional theory of international capital movements, which suggests that capital flows based on interest rate differentials, does not apply to direct investment. Instead, he proposes that direct investment is associated with the international operations of firms, and that the extent of these operations determines the amount of capital movement. Hymer identifies two main reasons for international operations: (1) firms control enterprises in multiple countries to remove competition, especially in markets where firms sell to each other under imperfect competition; and (2) firms invest abroad to fully appropriate returns from certain skills or abilities they possess. These reasons help explain the extent of international operations, though they do not predict it exactly. Other methods, such as collusive agreements, may also remove competition. Hymer also notes that the amount of capital associated with international operations depends on the imperfections in the capital market. He suggests that firms often finance their international operations by borrowing locally rather than from their home country, indicating that the desire for control, not interest rate differences, drives capital movement. Empirical evidence suggests that direct investment is concentrated in a few industries rather than in many countries, contradicting the interest-rate theory. Hymer concludes that the theory of international capital movements is insufficient to explain direct investment, and that the study of direct investment is more relevant due to the imperfections in the capital market. The thesis also discusses the differences between direct and portfolio investment, the barriers to international operations, and the motivations for firms to engage in international operations. Hymer emphasizes the importance of control and the role of national firms in international markets. The study highlights the complexity of international investment and the need for a different theoretical framework to explain direct investment.Stephen Herbert Hymer's 1960 thesis, "The International Operations of National Firms: A Study of Direct Foreign Investment," examines why firms invest directly in foreign countries rather than through portfolio investments. Hymer argues that the traditional theory of international capital movements, which suggests that capital flows based on interest rate differentials, does not apply to direct investment. Instead, he proposes that direct investment is associated with the international operations of firms, and that the extent of these operations determines the amount of capital movement. Hymer identifies two main reasons for international operations: (1) firms control enterprises in multiple countries to remove competition, especially in markets where firms sell to each other under imperfect competition; and (2) firms invest abroad to fully appropriate returns from certain skills or abilities they possess. These reasons help explain the extent of international operations, though they do not predict it exactly. Other methods, such as collusive agreements, may also remove competition. Hymer also notes that the amount of capital associated with international operations depends on the imperfections in the capital market. He suggests that firms often finance their international operations by borrowing locally rather than from their home country, indicating that the desire for control, not interest rate differences, drives capital movement. Empirical evidence suggests that direct investment is concentrated in a few industries rather than in many countries, contradicting the interest-rate theory. Hymer concludes that the theory of international capital movements is insufficient to explain direct investment, and that the study of direct investment is more relevant due to the imperfections in the capital market. The thesis also discusses the differences between direct and portfolio investment, the barriers to international operations, and the motivations for firms to engage in international operations. Hymer emphasizes the importance of control and the role of national firms in international markets. The study highlights the complexity of international investment and the need for a different theoretical framework to explain direct investment.