CH 8-9 MGT4230 Simsek

As of _____, all members of WTO were participating in one or more regional trade agreements.

2018

Before the United Kingdom decided to exit the EU, how many total countries were involved by 2014?

28

Approximately how many regional trade agreements are currently in force?

280

According to Ross Perot, ratification of NAFTA would result in the loss of about ______ million jobs from the US and Canada, as firms from these countries sought to capitalize on lower wages in Mexico.

5.9

The United States-Mexico-Canada Agreement renegotiated NAFTA and requires automakers to produce _____ of a vehicle's content in North America to qualify for zero tariffs.

75%

Free trade agreements account for nearly ____ of regional economic agreements.

90%

What are the two main types of FDI?

Acquisition or merger with an existing foreign firm Establishing a new operation in a foreign market

What are two reasons businesses prefer acquisition as a means of FDI over a greenfield investment?

Acquisitions are faster to execute than greenfield investments. Businesses believe they can increase the efficiency of the acquired unit.

What are two potential costs of FDI to host countries?

Adverse effects on competition within the host nation Adverse effects on balance of payments

Because of political unrest, armed conflict, and frequent changes in economic policy, this region has typically received the smallest amount of inward investment.

Africa

What are three advantages of FDI?

Allows for tight control over the firm's operations Overcomes high transportation costs Allows the firm to maintain control over technological know-how

What are two current trends in FDI?

An increase in FDI aimed at countries that have liberalized their FDI regimes An increase in the volume of FDI

Mercosur is a free trade pact started in 1988 by which two South American economies?

Argentina Brazil

Identify two costs of FDI to a home country.

Balance of payments are negatively affected if FDI is a substitute for direct exports. Balance of payments are negatively affected if purpose of FDI is to develop a low-cost production location.

Under the Andean Pact, which two members received special concessions based on the size of these countries?

Bolivia Ecuador

In 1969, which countries created the Andean Pact that was modeled on the EU, but was not as successful in achieving regional groups objectives?

Bolivia, Chile, Colombia, Ecuador, Peru

In 2004, the US and six Central American countries formed a free trade agreement called

CAFTA

Which NAFTA country experienced a welfare loss since the program's inception?

Canada

Studies of NAFTA's effects show that ______ are the top three trading partners of the US, which suggests that NAFTA has had some positive effects.

Canada, China, and Mexico

Which country has shown a marked increase in FDI inflows since 2004?

China

What are two impediments to establishing economic integration?

Concerns over national sovereignty Costs of integration

What are two key political institutions of the EU?

Council of the European Union European Commission

Which country has a policy that encourages FDI?

Country A has a government-backed insurance program to protect against the risk of expropriation.

Which EU organization handles appeals of EU law?

Court of Justice

What are three advantages of regional market integration that can result in cost savings to a business?

Free movement of goods across borders Simplified tax regimes Harmonized product standards

As the text notes, support for the euro was compromised when _____ was put in the position of underwriting loans to bail out the governments of Greece, Portugal, and Ireland.

Germany

The impending British exit from the EU is seen by other smaller member nations as a problem because Britain acts as a counterweight to the economic power of _____.

Germany

Which country was always considered a major holdout in the EU because it did NOT agree to accept the euro as a common currency?

Great Britain

Which EU country did the International Monetary Fund agree to bailout in 2010 for fear it might default on its sovereign debt?

Greece

Which three nations are a part of ASEAN? Check all that apply.

Indonesia Philippines Singapore

Firms for which licensing is NOT a good option are clustered in which three industries?

Industries with intense cost pressures Global oligopolies High-tech industries

What are two characteristics of the eclectic paradigm?

It combines the best aspects of other theories of foreign direct investment into a single explanation It provides a single holistic explanation of foreign direct investment

What are two characteristics of the European Central Bank?

It is meant to be free from political pressure. It was established to ensure price stability.

What are two potential problems with an economic union?

It requires a coordinating bureaucracy. There is a surrender of some national sovereignty.

______ theory of FDI suggests that firms imitate and react to each other's behavior.

Knickerbocker's

Under which treaty was the power of the European Parliament increased?

Lisbon

What are the two most common incentives governments offer to foreign firms to invest in their country?

Low-interest loans Subsidies

Identify two benefits of FDI to a home country.

MNE learns skills from exposure to foreign market Foreign subsidiary creates demand for home-country exports

What committed EU members to adopt a common currency by January 1, 1999?

Maastricht Treaty

What are two factors that support the idea for political integration of nations through trade?

Making nations interdependent can decrease the potential for violent conflict. Countries can enhance their political weight in the world.

Which company demonstrates a successful franchising, strategy?

McDonald's

The trade pact developed in 1988, initially between Argentina and Brazil, is called ______.

Mercosur

Proponents of NAFTA argued many would benefit from the movement of low-skilled, labor-intensive production to ______, which might have a competitive advantage in this area.

Mexico

When NAFTA was established it was a regional economic alliance made up of the United States, Canada, and _____.

Mexico

Which country risked the most from participating in NAFTA because it does NOT have access to the capital resources and highly-skilled workforce found in the other countries?

Mexico

What three countries established the North American Free Trade agreement?

Mexico US Canada

Critics of NAFTA worried that ______ as a result of the agreement.

Mexico would degrade clean air and toxic waste standards across the continent

Some people suspect that Turkey has been denied joining the EU because it is primarily a ______ nation.

Muslim

Which agreement was an attempt at regional economic integration in the United States?

North American Free Trade Agreement

Identify the two reasons that the EU is NOT considered a perfect economic union.

Not all markets are fully deregulated. There is a difference in tax rates across the countries.

What two measures can countries employ to restrict foreign direct investment?

Performance requirements Ownership restraints

The Treaty of _____ established the European Community in 1957.

Rome

What are two reasons to establish a common EU currency?

Savings from handling just one currency Easier to compare prices across Europe

To signify the importance of the ______, the European Community decided to change its name to the European Union once the act took effect.

Single European Act

What are two potential costs Britain might face when its exit from the EU is complete?

Some multinationals may move operations to other EU countries to access the single market. There might be a decrease in the rate of economic growth.

What two factors cause major adverse effects on a host country's balance of payments?

The outflow of earnings from a foreign subsidiary to its parent company A foreign subsidiary importing a large number of inputs from abroad

The United States, the United Kingdom, the Netherlands, France, Germany, and Japan together have accounted for the majority of all FDI outflows for 1998-2018 for what two reasons?

They provided the base for many of the largest and best-capitalized businesses. They were the most developed nations with the largest economies in the postwar period.

Which of the following are reasons for a customs union being put in place?

To eliminate trade barriers between member countries To establish a common external trade policy

Proponents of NAFTA believed that it would result in

US and Canadian consumers benefiting from lower prices.

What country has been the largest source of FDI since World War II?

United States

While the radical view has been in retreat since the early 1990s, ______ continues to follow this philosophy under the government of Hugo Chavez.

Venezuela

What international organization is involved in the governing of FDI?

WTO

With the formation of the ______ in 1995, there now is a multinational institution that has become involved in regulations governing FDI.

WTO

Which level of economic integration is present in an agreement that has no barriers to trade among member countries and allows factors of production (such as labor) to move freely among the members?

a common market

It is easiest to establish regional economic integration among

a limited number of adjacent countries.

The European Commission, to maintain the level of competition in the EU, is increasingly willing to impose conditions from businesses before allowing

a merger or acquisition

The stock of foreign direct investment refers to the total

accumulated value of foreign-owned assets at a given point in time.

A form of FDI, other than greenfield investments, is to

acquire or merge with an existing company in the foreign country

The Maastricht Treaty committed EU members to

adopt a common currency by January 1, 1999.

A restriction put on new members to the EU that entered in 2004 was that these new members could not ______ for several years.

adopt the euro

While the EU is seen as an economic union, it is considered imperfect because not all members of the EU have

adopted the same currency

Knickerbocker would say that in an oligopoly, if one firm decides to raise prices, then other firms would

also raise prices

Mexican critics of NAFTA claimed that the US would use Mexico as a place to conduct ______ jobs.

assembly

A country's ___________ accounts track expenditures and receipts from other countries.

balance-of-payments

According to pragmatic nationalism, FDI should be allowed as long as

benefits outweigh costs

When a company moves operations overseas to take advantage of lower labor costs, this strategy increases the overall efficiency of resource utilization in the global economy. According to the free market view of FDI, this benefits

both the source and the host countries

One of the changes proposed by the Single European Act was to abolish the restrictions placed on foreign truckers who pick up and deliver goods within another member's state borders. This hauling process is known as ______.

cabotage

When a firm invests in plant, equipment, and R&D as a result of increased competition, this is referred to as a(n) ______ investment.

capital

Earnings from a foreign subsidiary to the parent company are recorded as ______ on the balance-of-payments accounts.

capital outflow

What three reasons are used to explain the retreat of the radical position by the early 1990s?

collapse of communism in eastern Europe generally poor economic performance of those countries that embraced radical position generally strong performance of the developing countries that embraced capitalism

One reason for establishing the euro was because a(n) ______ currency would make it easier to compare prices across Europe.

common

The members of Mercosur agreed on a _____ in 2010 in an attempt to avoid paying tariffs more than once.

common customs code

A(n) ______ allows the free movement of factors of productions among member countries, eliminates trade barriers among member countries, and has a common external trade policy.

common market

The Treaty of Rome established a(n) ______.

common market

What are two methods a country would use to achieve economic integration?

common market economic union

Until the fall of ______ between 1989 and 1991, Eastern European countries were opposed to FDI.

communism

Within the European Union, what role is responsible for reviewing proposed mergers and acquisitions in order to avoid one enterprise achieving substantial market power?

competition commissioner

With the increase in single regional markets, managers must continually monitor for threats, including that the business environment within each grouping has become more

competitive

The European Parliament is considered a _____ body.

consultative

An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored.

costs

When high-cost domestic producers have been replaced by low-cost producers within a free trade zone, this is called trade _____.

creation

The _____ account tracks goods and services exports and imports in balance-of-payments accounting.

current

Tracking exports and imports of goods and services is measured by the _____ account in balance-of-payments accounting.

current

In moving toward economic and political integration, a(n) ______ union removes trade barriers among member nations and establishes a common trade policy for nonmembers.

customs

Currently, the Andean Community functions as a

customs union

A government would be concerned when the country is running a ______ on the current account of their balance of payments.

deficit

In the past, most foreign direct investment has been directed at _____ nations.

developed

The concern that an MNE could drive local firms out of business, monopolize the market, and raise prices above those that would prevail in competitive markets is more of a worry for _____ economies.

developing

The 2,000 employees working in Toyota's factory in France are an example of the ______ effect of FDI on employment, while the 2,000 new jobs that were created in support industries are an example of the ______ effect of FDI on employment.

direct, indirect

The ______ effects of FDI come when a multinational enterprise hires host-country citizens and ______ effects come when local suppliers hire workers as a result of the FDI.

direct; indirect

How do members of the European Parliament gain their seat?

directly elected by the citizens

Most economists _____ the idea that FDI is usually accompanied by some loss of economic independence.

dismiss

Since the WTO has a limited scope, the risk remains that regional economic integration will result in trade _____.

diversion

When lower-cost external suppliers are replaced by higher-cost suppliers within a free trade zone, this is called trade _____.

diversion

The weakening of which currency helped raise the value of the euro beginning in 2001?

dollar

There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years.

dormant

To encourage FDI, many countries have eliminated ______ taxation of foreign income.

double

The _____ paradigm is based on the way location affects the direction of a company's foreign direct investment.

eclectic

The ______ argues that combining location specific assets or resource endowments and the firm's own unique assets often requires FDI.

eclectic paradigm

A(n) ______ union adds more economic integration to a common market by requiring a common currency, a common monetary and fiscal policy, and harmonization of tax rates.

economic

Regional _____ integration creates agreements among countries in a specific geographic area in order to reduce and eventually remove tariff and nontariff barriers to the free flow of goods.

economic

A drawback of Knickerbocker's theory is its failure to address

efficiency

When Crane Automotive Group developed operations in Italy, it not only built a manufacturing plant there but also imported parts from several other European nations. Which home country benefit of FDI does this represent?

employment effects

The shift toward more democratic political institutions and free market economies has _____ foreign direct investment.

encouraged

When NAFTA was created, it allowed for special protection from foreign direct investment on which two Mexican industries?

energy railway

In 2001, Kenya, Uganda, and Tanzania, members of the East African Community, tried to

establish a customs union

What are two requirements countries must take to qualify for EU membership?

establish stable democratic government respect human rights

Which objective of the Andean Community has NOT yet been implemented?

establishment of a common market

Producing a good at home and then shipping it to another country for sale is called _______.

exporting

Simple Services Corp. is considering FDI in Japan. However, Simple Services wants to keep tight control over the foreign entity to ensure it will achieve maximum earnings in Japan. Which form of FDI would be better for the company to use?

exporting

______ refers to shipping goods and services out of the jurisdiction of a country.

exporting

As an alternatives to FDI, firms could choose ______, which involves producing goods at home and shipping them overseas, or ______, which is granting a foreign firm the right to produce and sell a product in return for a royalty fee.

exporting; licensing

_____ are a network of informal contacts that allow companies to benefit from each other's knowledge.

externalities

True or False: Critics say that the EU is an optimal currency area which is why it is difficult to adopt a single currency.

false

True or false: An acquisition is considered beneficial because it effectively reduces the number of businesses in a market.

false

True or false: Economists would agree that the EU is an optimal currency area.

false

True or false: Opponents of NAFTA felt that the program would result in a large exodus of jobs from Mexico.

false

True or false: The Single European Act had little to no impact on the EU economy.

false

True or false: The World Trade Organization has been successful in its efforts to establish a universal set of rules governing the liberalization of FDI.

false

True or false: The greater the number of countries involved in economic integration, the easier it is to reach an agreement among the countries.

false

True or false: When FDI occurs through greenfield investment, it will increase competition in a market and decrease economic welfare.

false

Businesses should seek out a country that has _____ policies toward FDI.

favorable

The idea that an MNE could come into a country and monopolize a market tends to be a greater concern in countries that have

few large firms of their own

The _____ of FDI is the amount of FDI attempted over a period of time (usually one year).

flow

Prior to its renegotiation under the presidency of Donald Trump, NAFTA had been in place _____.

for 25 years

Economic theories advocate for _____ trade and investment that will allow participating countries to gain economically.

free

Dell moved its assembly operations for many of its personal computers to Mexico to take advantage of lower labor costs. The ______ view of FDI states that overall efficiency of resource utilization increases in the world economy.

free market

The ______ view of FDI states that international production should be allocated based on the theory of comparative advantage.

free market

Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?

free market

The Association of Southeast Asian Nations was formed with the intent to foster _____.

free trade

A lack of barriers to the trade of goods and services among member countries is found in a(n):

free trade area

The least integrated form of economic integration is a

free trade area

What were two expected results of the Single European Act?

give EC firms additional opportunities for economies of scale. lower the costs of doing business between member countries

The establishment of the euro is seen as a surprising political accomplishment because it required participating governments to

give up control over monetary policy.

One reason for the wave of FDI into the United States by Japanese auto companies was partly in response to

government-imposed tariffs on Japanese auto imports.

A low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?

greenfield investment

Foreign direct investment can be in the form of a(n) ______ which occurs when a firm establishes a new operation in a foreign market.

greenfield investment

What are two potential threats to firms outside of a trading block such as the EU?

hose firms might be shut out of the market by a "trade fortress" those firms would face likely long-term improvement in the competitive position of firms within the market

Performance requirements are put in place to minimize the costs of FDI for the _____ country.

host

Venezuela and Bolivia are examples of countries that have become more _____ to FDI.

hostile

Despite having a customs union with the EU, full membership in the EU for Turkey has been denied because of concerns over

human rights issues

During the campaign for leaving the EU, one of the recent claims said that leaving the EU would allow the British to take back control of _____.

immigration

FDI occurs when a company invests in facilities

in a foreign country

There has been a(n) _____ in regional economic integration in the past two decades.

increase

What are two long-term effects from increased competition?

increased productivity growth product and process innovations

What were two concerns about NAFTA's short-term effect on Mexico?

increased unemployment difficult economic restructuring

According to Alexander Yeats, the countries that produce the fastest-growing products in intra-Mercosur trade do so _____ and at the _____ price.

inefficiently; highest

Over the past few years, more and more companies are investing in businesses in Scandinavia. These investments represent the _____ of FDI for the Scandinavian countries.

inflow

Fears of "economic ransom" are irrational, according to Robert Reich, because of the growing ______ of the world economy.

interdependence

What is a feature of an oligopoly?

interdependence of major players

When the euro-zone economies are NOT growing at the same rate, a common monetary policy linked to common currency may mean that ______ rates may not reflect any one individual country's needs.

interest

The Treaty of Rome was instrumental in creating a common market. Article 3 of that treaty called for the elimination of ______.

internal trade barriers

The market imperfections approach is also known as the ______ theory.

internalization

Which concept BEST explains why the first firm in an oligopoly decides to undertake foreign direct investment rather than exporting or making a licensing agreement?

internalization theory

What is the purpose of the European Stability Mechanism that was established by the EU?

it is a permanent bailout fund

What effect did the Single European Act have on gross domestic product in the first 15 years?

it raised GDP between two and five percent

Toyota prefers direct investment in a foreign entity rather than licensing. This decision stems from the fact that Toyota pioneered ______ which enables it to produce higher quality automobiles at a lower cost than global rivals.

lean production

Allowing a foreign firm to produce and sell your product for a royalty fee is called ______.

licensing

Green Organics Ltd. based in Phoenix, Arizona has given a British-based company the right to produce and sell their products. In return for this, the British company will pay Green Organics $1 for every unit it sells. What type of investment is Green Organics using?

licensing

Internalization theory is used to explain why a firm would prefer foreign direct investment over ______ as a strategy to enter a foreign market.

licensing

The limits of ______ include giving away valuable know-how to competitors and losing control over marketing, production and strategy.

licensing

What are two alternatives to FDI?

licensing exporting

Since 2010, Mercosur has made ______ progress toward achieving its goals.

little

Dunning's eclectic paradigm is seen as a useful addition to explaining patterns of FDI because it explains how ______ factors affect the direction of FDI.

location

Many of the world's oil companies have to invest where oil is located in order to combine their technological and management capabilities with the actual product. This demonstrates the idea of a(n) _____ advantage.

location-specific

The ability of an individual, company, or economy to conduct an activity better than another for reasons related to location is called a(n)

location-specific advantage

John Dunning proposed that ______ are an important factor when explaining the nature of foreign direct investment.

location-specific advantages

A host country cost of FDI could be the _____ of sovereignty and autonomy.

loss

Exporting strategy does not work for a(n) _____ value-to-weight ratio product that can be produced anywhere.

low

ABC Co. should choose exporting over licensing as a form of FDI if it has ______ transportation costs and is facing ______ trade barriers.

low; low

The creation of a single market creates _____ costs of doing business.

lower

The increase in competition in the national telecommunications market that resulted from the 1997 World Trade Organization agreement resulted in several benefits, including which two of the following?

lower prices modernization of telephone networks

Six Caribbean-area countries established the CSME in 2006 to accomplish what two things?

lower trade barriers coordinate macroeconomic and monetary policy

Greenfield investing spurs competition by increasing the number of players in a market and this will tend to _____ prices and ______ economic welfare

lower, increase

The main job of the competition commissioner for the European Union is to regulate business in order to prevent

monopolies

What is a potential adverse impact on competition when a foreign entity acquires firms in a host country?

monopoly

The situation where multiple firms encounter each other in different regional markets, national markets or industries is called

multi-point competition

Griffin Labs and Sequence Labs are in competition in the same seven regional markets. This is an example of

multipoint competition

According to the Single European Act, a product standard developed in one EC country should be accepted in another. This is known as the principle of ______.

mutual recognition

Ownership restraints on FDI are often put into place by a host country based on concerns of

national security

The main reason Great Britain did NOT agree to accept the euro as a common currency is because doing so would require Great Britain to relinquish control of the monetary policy, and as a result, ______ would be diminished.

national sovereignty

Historically, countries like Iran and India that are more ______ than ______ have favored the radical position that FDI is bad.

nationalistic; socialistic

Regional trade blocs can possibly occur in markets that are protected from outside competition because ______ barriers are in place, and the WTO does not cover some of these types of barriers.

nontariff

FDI that serves the home market is called ______ production.

offshore

The board of directors of Green Garden Supply in Vermont voted to invest in a production facility in Mexico as a way to lower costs and free up financial resources for the company to grow in other areas. What form of FDI is this company using?

offshore production

A(n) ______ is a market form in which a market or industry has a limited number of large firms.

oligopoly

The Court of Justice is made up of

one judge from each country in the EU.

When an optimal currency area exists, similar underlying structures of economic activity make it more feasible to adopt _____.

optimal currency

One reason Toyota does NOT make licensing agreements is because its management and process capabilities have been developed over many years and are a part of the organization. In other words, Toyota's ______ cannot be licensed.

organizational culture

A key cost of FDI for the home country is when the balance of payments is adversely affected by the initial capital _____ required to finance the FDI.

outflow

______ of FDI refers to the value of outward direct investment made by the residents of the reporting economy to external economies.

outflows

According to the US Department of Commerce, an interest of ______ in a foreign business is needed to achieve FDI.

over 10%

A(n) ______ union consists of a central governing body that regulates the economic, social and foreign policy of member states.

political

African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil.

political

Some countries prohibit national firms from investing in specific countries for ______ reasons, such as US firms being prohibited from investing in Cuba during the Cold War.

political

The United States is considered a close example of a _____ because 50 independent states are effectively combined into a single nation.

political union

Based on economic theories, free trade is viewed as a ______ as all participating nations stand to gain.

positive-sum game

Pre-1980, Japan blocked the majority of potential foreign investments. Yet, if a company that had cutting edge technology wanted to invest in Japan, they were allowed to undertake FDI. This is an example of the ______ view.

pragmatic nationalism

Which view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI?

pragmatic nationalism

The Treaty of Lisbon created the position of ______ of the European Council.

president

The radical view toward FDI argues that MNE's extract ______ from the host country and take them back to their home country.

profits

One way to deal with euro economies that are NOT growing in unison is to engage in fiscal transfers, which involves taking money from ______ and giving it to areas that are not as successful.

prosperous regions

One way a government can limit the amount of imports coming into a country is by imposing

quotas

The _____ view of foreign direct investment has its basis in Marxist theory.

radical

A(n) ______ effect has occurred when a company's FDI of capital, technology, and management resources create a positive contribution to a host country that might not otherwise be available.

resource transfer

At one time, Britain taxed British companies' foreign earnings at a higher rate than their domestic earnings in order to _____ FDI.

restrict

Ownership restraints and performance requirements are two ways in which governments can _____ FDI.

restrict

During 2007 and 2008, many investors were taking money out of the U.S. by selling U.S. stocks, and purchasing euro-denominated assets; therefore, the value of the euro _____.

rose

The euro is the ______-most traded currency in the world.

second

The only way a country can support a current account deficit, also known as a trade deficit, in the long-run is to _____.

sell off assets to foreigners

The 1997 World Trade Organization agreement opened the telecommunications market to foreign competitors and exemplifies how _____ are impacted by FDI.

services

The number of votes a country gets in the European Council is related to the

size of the country

What are two examples of location-specific advantages?

skilled labor natural resources

One reason given to explain the downfall of the Andean Pact points to the political ideology of the countries involved. This political ideology centered on the ______ end of the political spectrum.

socialist

An example of the pragmatic nationalist view is that the host country can gain in jobs and skills and the profits go to the ______ country.

source

What are two reasons the United States has been an attractive target for FDI?

stable economy large domestic markets

Critics argue that not all new jobs created by FDI represent net additions in employment. This is due to the _____ effect where some jobs created are offset by jobs lost elsewhere.

substitution

Critics argue that FDI by Japanese auto makers does not make up for the jobs lost in US-based auto manufacturers. These critics are concerned with the

substitution effect

What two positive contributions to a host country can FDI provide?

supply capital, technology, and management resources boost a country's economic growth rate

When a country maintains a current account _____, it is unlikely to have to sell off assets in order to balance accounts.

surplus

NAFTA eliminated ______ on almost all of the goods traded between Mexico, Canada, and the United States.

tariffs

A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some US and Canadian workers in the ______ industry following the establishment of NAFTA.

textile

CARICOM was a customs union created in 1991 among countries in _____.

the Caribbean

Costa Rica, El Salvador, Guatemala and other countries in the early 1960s formed a common market that was called

the Central American Common Market

The economic policies of the European Union are established by the four main institutions in the political structure: the European Commission, the Council of the European Union, the European Parliament, and _____.

the Court of Justice

______ is considered the most successful attempt at regional economic integration.

the EU

Which of the following is the overall controlling authority within the European Union (EU) that must approve draft legislation from the European Commission before it becomes EU law?

the European Council

The CAFTA was formed to lower trade barriers between ______.

the US and Central America

The anticipated exit of _____ from the European Union has cast a level of doubt about the future of the project.

the United Kingdom

What two factors would indicate that a firm has little bargaining power when considering FDI in a nation?

the firm has only a short period of time to complete the negotiations the host government places a low value on what the firm has to offer

The World Trade Organization has based the majority of its efforts on pushing for the liberalization of regulations governing ______.

the service industry

The two restrictions put on new members to the EU that joined in 2004 were:

they could not adopt the euro for several years. free movement of labor among the new and existing members was prohibited for several years.

FDI theory suggests that exporting is preferable to licensing and FDI as long as what two things are in place?

trade barriers are low transportation costs are low

______ is an economic term that refers to high-cost domestic producers being replaced by low-cost producers within the free trade area.

trade creation

Some economists argue that regional free trade agreements will provide global benefits only if

trade creation exceeds trade diversion.

______ is an economic term defined as replacing lower-cost external suppliers with high-cost suppliers within the free trade area.

trade diversion

Research shows that multinational companies _____ technology when they invest in a foreign country.

transfer

What are two limitations on exporting?

transportation costs trade barriers

True or false: A company that decides to locate operations close to other companies so it can take advantage of their knowledge is an example of how businesses use externalities.

true

True or false: A company would favor FDI over exporting when trade barriers are in place.

true

True or false: Acquisitions are the preferred method of FDI because global markets evolve very rapidly and acquisitions are quicker to execute.

true

True or false: Alexander Yeats claimed that the trade diversion effects of Mercosur outweighed its trade creation effects.

true

True or false: Less than 20 years after it was established, the Andean Pact was on the verge of collapse.

true

True or false: Many of the newer EU nations that had committed to adopting the euro have now put their plans on hold.

true

True or false: One political reason that supports economic integration is the potential to reduce violent conflict between nations.

true

True or false: Tax concessions can be used by a government to encourage foreign firms to do business in that country.

true

True or false: When RCA licensed its color television product to a number of Japanese companies in the 1960s, these companies turned around and entered the US to directly compete with RCA and diminished its role in the market. In this situation, licensing resulted in RCA giving away proprietary information to a potential competitor.

true

After the British government formally notified of its intent to exit the European Union, the country had _____ to negotiate the terms of the exit.

two years

The collapse of the Central American Common Market was a result of ______.

war between Honduras and El Salvador

The theories of FDI try to show:

why firms use a combination of avoiding exporting and licensing and entering the same markets as their competitors. why competitive firms often enter the same markets at the same time. why firms don't use exporting and licensing to enter foreign markets.

The ______ sets interest rates and monetary policy for the EU.

ECB

As the most enduring free trade area in the world, ______ concentrates in the free trade of industrial goods, but not agricultural products.

EFTA

In 2001, the ______ Community, made up of Kenya, Uganda and Tanzania, tried to reinvigorate their trade agreement after it collapsed 24 years before.

East African

What two political factors led to the development of the European Union?

Europe's desire to hold its own on the world's political and economic stage The devastation of western Europe during the two world wars

Which organization is playing an emerging role in competition policy within the EU and serves as a potential threat to companies wishing to do business there?

European Commission

Which of these trade unions is made up of European countries that decided NOT to be part of the European Community and emphasized free trade in industrial goods?

European Free Trade Association

What are the two major trading blocks in Europe?

European Free Trade Association European Union

The European Community (EC) became the ______ in 1993.

European Union

The most ambitious attempt at regional economic integration is the _____.

European Union

The most significant trading block in Europe based on economic and political influence is the _____.

European Union

One of the reasons the European Union was originally formed was because

Europeans desired a lasting peace after enduring two devastating world wars.

When a firm invests directly in a business or venture in another country, it is called ______.

FDI

When a firm participates in ______, it evolves into a multinational enterprise.

FDI

The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons?

FDI has been driven by political and economic changes in developing nations. Despite the decline in trade barriers, firms still fear protectionist pressures.

A study of FDI by the Organization for Economic Cooperation and Development (OECD) found which two results?

Foreign investors transferred technology to countries in which they invested. Foreign investors invested significant amounts of capital in R&D in the countries in which they had invested.