Chapter 8

What are two current trends in FDI?

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

What are two long-term effects from increased competition

Increased productivity growth Product and process innovations

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

balance-of-payments

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

communism

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

dismiss

One reason for the wave of FDI into the United States by Japanese auto companies was partly in response to Multiple choice question. the lack of vehicle availability in the US. government-imposed tariffs on Japanese auto imports. a search for intellectual property protection. the inability to license the products.

government-imposed tariffs on Japanese auto imports.

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

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

profits

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

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

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

Identify two costs of FDI to a home country.

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

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

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

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

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

lower, increase

Which country has a policy that encourages FDI?

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

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

current

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

nationalistic; socialistic

What are two potential costs of FDI to host countries

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

What are two reasons businesses prefer acquisition as a means of FDI over a greenfield investment? (Check all that apply.) Multiple select question. Businesses believe they can increase the efficiency of the acquired unit. Businesses want to acquire firms that need strategic assets, such as brand loyalty. Mergers are slower to execute than greenfield investments. Acquisitions are faster to execute than greenfield investments.

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

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

Externalities

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

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

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

the service industry

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

free market

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

interdependence

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

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

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

capital outflow

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

captial

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

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

services

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

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. Multiple choice question. organizational culture sales forecasting techniques marketing techniques investments

organizational culture

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

service

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

Venezuela

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

What are two examples of location-specific advantages? (Check all that apply.)

Skilled labor Natural resources

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

Subsidies Low-interest loans

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

The ______ argues that combining location specific assets or resource endowments and the firm's own unique assets often requires FDI. Multiple choice question. flow of FDI Sullivan principle eclectic paradigm difference principle

eclectic paradigm

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

hostile

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?

modernization of telephone networks lower prices

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

Knickerbocker's

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

Monopoly

The theories of FDI try to show: (Check all that apply.) Multiple select question. why firms use a combination of avoiding exporting and licensing and entering the same markets as their competitors. why firms don't use exporting and licensing to enter foreign markets. why competitive firms often enter the same markets at the same time. why firms neither avoid exporting and licensing nor enter the same markets as their competitors.

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

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

efficiency.

What are two characteristics of the eclectic paradigm? Choose all that apply. Multiple select question. It offers a good explanation of foreign direct investment in the 1980s and 1990s but is less successful at explaining more recent investment 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 It argues that the key question of foreign direct investment is whether to choose a greenfield investment or an acquisition

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 two measures can countries employ to restrict foreign direct investment

Ownership restraints Performance requirements

What are two characteristics of the eclectic paradigm? Choose all that apply. Multiple select question. 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 It argues that the key question of foreign direct investment is whether to choose a greenfield investment or an acquisition It offers a good explanation of foreign direct investment in the 1980s and 1990s but is less successful at explaining more recent investment

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 two positive contributions to a host country can FDI provide? (Check all that apply.)

Supply capital, technology & management resources Boost a country's economic growth rate