Final answer:
Dunning's eclectic paradigm is a framework that explains FDI patterns by assessing a company's ownership, location, and internalization advantages, which are crucial factors in deciding to undertake FDI.
Step-by-step explanation:
Dunning's eclectic paradigm is seen as a useful addition to explaining patterns of foreign direct investment (FDI) because it explains how ownership, location, and internalization (OLI) factors affect the direction of FDI. These factors, collectively known as the OLI paradigm, help to assess the reasons why a company may decide to engage in FDI in lieu of other options, like exporting or licensing.
Ownership advantages are the company-specific assets, such as proprietary technology, brand reputation, or managerial expertise, that a firm must own to overcome the costs of operating in a foreign country. Location advantages consider the attractiveness of a host country based on factors like market size, resource availability, and the legal environment. Lastly, internalization advantages relate to the cost-benefit analysis of keeping activities within the firm versus contracting them out through licensing or joint ventures. Combining these elements offers a comprehensive framework for understanding FDI patterns.