The benefits motivating foreign direct investment are complex and usually firm-specific. A primary motivation is the exploitation of monopoly power such as proprietary technology, brand names, or management know-how. Entry into more profitable markets is an obvious attraction, and new and possibly large markets may produce economies of scale. Access to foreign factors of production or technology, and reaction to trade restrictions or exchange rate movements, have also provided a motivation.

An important benefit of direct investment is diversification. National economies are in different stages of their economic cycles, and move differently. Just as diversification of a security portfolio across firms that react differently to economic cycles will reduce the variability of portfolio returns, investment across national economies reduces the volatility of the firms’ cash flow. This reduces the possibility of inadequate liquidity and should increase the value of the firm.