BUS 498 - Chapter 8
Balance of payments
National accounts that track both payments to and receipts from foreigners.
Even though a lot of FDI investment goes to developed nations, developing nations have also increased.
TRUE
Externalities
knowledge spillovers
Stock of FDI
value of the foreign owned assets at the time
When does a trade deficit occur
when a country imports more than it exports
Two forms of FDI
1. A greenfield investment 2. Acquisition or merging with an existing firm in the foreign country
Why has FDI grown more rapidly that world trade and world output?
1. Despite general decline in trade barriers, firms still fear protectionist pressures. i.e. Execs see FDI as a way of circumventing trade barrier. 2. The general shift toward democratic political institutions and free market economies
What 6 countries accounted for the most sources of FDI?
1. U.S. 2. United KingdoM 3. Netherlands 4.Germany, 5. Japan 6.France
FDI occurs when a U.S. citizen takes an interest of ________ % or more
10
offshore production
FDI undertaken to serve the home market.
Acquisition and mergers tend to decrease jobs
False. research suggests that once the initial period of restruc- turing is over, enterprises acquired by foreign firms tend to increase their employment base at a faster rate than domestic rivals
The past 35 years have seen a marked __________in both the flow and stock of FDI in the world economy.
Increase
Many economists favor_______ theory over __________ theory to explain why firms engage in FDI
Internalization over imitation
In the case of developing nations, only about one-third or less of FDI is in the form of ________ The lower percentage of mergers and acquisitions may simply reflect the fact that there are fewer target firms to acquire in developing nations.
Mergers and aquisitions. since there are fewer target markets, rich companies just go to that country and start their own companies
Has globalization had a positive or negative impact on FDI?
Positive
How do Marxists view FDI
They argue that MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.
Who created lean production
Toyota
THE SOURCE OF FDI: Since World War II, t________ has consistently been the largest source country for FDI.
U.S.
THE DIRECTION OF FDI: __________ and ________ have historically been the largest recipients of inward FDI.
UK and France
FDI
When a firm invests directly in facilities to market a good or service in a foreign country 10% or more
Negatives of FDI (Costs to host country)
When a foreign investor acquires two or more firms in a host country and subsequently merges them, the effect may be to reduce the level of competition in that market, create monopoly power for the foreign firm, reduce consumer choice, and raise prices.
What is the downside of exporting?
When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance.
are more countries in support of or against FDI
an increasing number of countries are gravitating toward the free market end of the spectrum and have liberalized their foreign investment regime.
Increased competition tends to stimulate less or more growth for ecnomoies
capital investments by firms in plant, equipment, and R&D as they struggle to gain an edge over their rivals
Greenfield investment
establishment of a new operation in a foreign country
What ends up happpening in multipoint competition situations
firms will try to match each other's moves in different markets to try to hold each other in check.
International trade theory
home-country concerns about the negative eco- nomic effects of offshore production may be misplaced
Oligopoly
industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly
3 weaknesses of licensing (internalization theory)
licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor licensing does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability While a foreign licensee may be able to physically reproduce the firm's product under license, it often may not be able to do so as efficiently as the firm could itself.
Silicon valley has a _______
location-specific advantage
40 to 80 percent of all FDI inflows were in the form of _______ between 1998 and 2014.
mergers and acquisitions
Once a firm undertakes FDI, it becomes a(n) _____
multinational enterprise
Outflow of FDI
the flow of FDI out of a country, and inflows of FDI, the flow of FDI into a country.
Current account
tracks the export and import of goods and services
Beneficial spin-off
when local personnel who are trained to occupy managerial, financial, and technical posts in the subsidiary of a foreign MNE leave the firm and help establish indigenous firms.
Multipoint competition
when two or more enterprises encounter each other in different regional markets, national markets, or industries.1
Trends
-Firms copy each other in FDI investmnets
location specific advantages
Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm's technological, marketing, or management know-how).
Flow of FDI versus stock of FDI
Amount of FDI undertaken (directly invested in) over a given time period Stock of FDI - total accumulated VALUE of foreign owned assets at a given time
The free market view
Countries should specialize in the production of those goods and services that they can produce most efficiently. the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.
FDI has ______ than world trade and world output
More rapidly
Pragmatic Nationalist
DI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.
Direct and indirect employment effects
Direct: the firm employing local workers Indirect:arise when jobs are created in local suppliers as a result of the investment and when jobs are created because of increased local spending by employees of the MNE.
Internalization theory
The argument that firms prefer FDI over licensing in order to retain control over know-how, manufacturing, marketing, and strategy or because some firm's capabilities are not amenable to licensing.