Backward and forward internalization

Question

Discuss and compare the backward vs. forward internalization.

Answer 1

Forward internalization happens when the MNCs with intangible assets make FDI to use the assets on the larger scale and simultaneously internalize any possible externalities produced by the assets. Backward internalization, otherwise, happens when MNCs attain the foreign firms to obtain the access to intangible assets residing in foreign firms and simultaneously internalize any externalities produced through the assets.