Chapter 8 Foreign Direct Investment

When a company brings capital and/or technology to a host country, the host country benefits from the

The resource transfer effect of FDI

The stock of FDI is

The total accumulated value of foreign owned assets at a given time

According to Knickerbocker,

when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments

The largest source country for FDI since World War II has been

The United States

The amount of FDI undertaken over a given time period is

The flow of FDI

According to ________ international production should be distributed among countries according to the theory of comparative advantage

The free market view

Which of the following is not a reason that the radical position of MNEs was in retreat by the end of the 1980s?

A growing belief in many capitalist countries that MNE's rightly controls key technology and that important jobs in the MNEs' foreign subsidiaries go to home-country nationals

The rise in FDI in the services sector is a result of the following, except:

Accelerating regulations of services

If four firms control 80 percent of a domestic market, then _______ exists

An oligopoly

A _______ keeps track of a country's payments to and its receipts from other countries

Balance of payments account

John Dunning, a champion of the eclectic paradigm, argues that

Combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI

The ______ tracks the export and import of goods and services. A current account deficit or trade deficit as it is often called, arises when a country is importing more goods and services that it is exporting

Current account

Three costs of FDI concerns of host countries arise from all of the following except

Debit on the current account of the home country's balance of payments

Historically, most FDI has been directed at the _______ nations of the world as firms based in advanced countries invested in

Developed; each other's markets

The ______ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located.

Eclectic paradigm

Which of the following is not a reason why firms prefer to acquire existing assets rather than undertake green-field investments

Even though Greenfield investments are comparatively less risky for a firm acquisitions always yield higher profits

When two or more enterprises encounter each other in different regional markets, national markets or industries, there is

Multipoint competition

FDI undertaken to serve the home market is known as

Offshore production

FDI has been rising for all of the following reasons, except:

The general increase in trade barriers over the past 30 years

FDI occurs when a

Firm invests directly in facilities to produce and/or market a product in a foreign country

________ is essentially the service industry version of licensing, although it normally involves much longer term commitments

Franchising

In developing nations most FDI inflows are in the form of

Greenfield investments

The total amount of capital invested in factories, stores, office buildings and the like is summarized by

Gross fixed capital formation

Identify the incorrect statement regarding the direction of FDI

Historically, most FDI has been directed at the developing nations of the world

Licensing would be a good option for firms in which of the following industries?

In fragmented, low technology industries in which globally dispersed manufacturing is not an option

When jobs are created in local suppliers as a result of the FDI and when jobs are created because of increased local spending by employees of the MNE, the MNE has a _______ effect on employment

Indirect

Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets

Internalization theory

___________ is also known as market imperfections theory

Internalization theory

The U.S. has been an attractive target for FDI because of all of the following reasons except

Its small and wealthy domestic markets

The eclectic paradigm was developed by

John Dunning

Africa is not a popular destination for FDI because of all the following reasons, except

Liberalization of FDI regulations

In a licensing arrangement, the _______ bears the risk and cost of opening a foreign market

Licensee

__________ involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold

Licensing

According to the internalization theory, all of the following are drawbacks of licensing as a strategy for exploiting foreign market opportunities, except

Licensing does not grant control over manufacturing, marketing and to a licensee in return for a royalty fee.

Advantages that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets are known as

Location specific advantages

Most cross-border investment is

Made via mergers and acquisitions

If General Electric, a U.S. based corporation, purchased a 50% interest in a company in Italy, that purchase would be an example of

Majority Acquisition

When strategic assets such as brand loyalty, customer relationships or distribution systems are important, ______ investments are more appropriate

Merger and acquisition

______ are controls over the behavior of the MNE's local subsidiary

Performance requirements

A distinctive aspect of ________ is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants

Pragmatic nationalism

According to the _________ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange

Radical

Double taxation is

Taxation of income in both home and host country

The sector composition of FDI shows that by 2004 approximately ________ of FDI stock was in the service industries

Two third

A Greenfield investment

is a form of FDI that involves the establishment of a new operation in a foreign country

The product life cycle suggests that

often the same firm that pioneer a product in their home markets undertake FDI to produce a product for consumption in foreign markets