Ch 8

What are three advantages of FDI?

1. Allows the firm to maintain control over technological know-how 2. Allows for tight control over the firm's operations 3. Overcomes high transportation costs

What positive contributions to a host country can FDI provide?

1. Balance of payment effects 2. Resource transfer effects 3. Economic growth

What are the two types of FDI?

1. Establishing a new operation in a foreign market 2. Acquisition or merger with an existing foreign firm

What are two limitations of licensing?

1. Firm does not have tight control over producing, marketing and strategy in a foreign country 2. Gives away valuable know-how to a potential competitor

Choose the three benefits of FDI to a home country.

1. Foreign subsidiary creates demand for home-country exports 2. Inward flow of foreign earnings 3. MNE learns skills from exposure to foreign market

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

1. Ownership restraints 2. Performance requirements

Which of these factors creates a limitation to exporting?

A product that can be produced almost anywhere

Fears of "economic ransom" are irrational, according to Robert Reich, because of the growing __________ of the world economy. (Choose interdependence or dependence)

Interdependence

________ theory is also known as the market imperfections theory.

Internalization

Johan's company has made a greenfield investment. What does this mean?

It established a new operation in a foreign country

Internalization theory tries to explain why firms often prefer FDI over ________ as a method for getting into foreign markets.

Licensing

What name is given to the advantages that coincide with utilizing resource endowments or assets tied to a specific area?

Location-specific

A host country cost of FDI could be the ________ of sovereignty and autonomy. (Choose gain or loss)

Loss

One potential benefit to consumers related to offshore production is....

Lower prices for goods

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

Lower; Increase

FDI that is pursued to serve that home market is called ________ production.

Offshore

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

Direct; Indirect

FDI has a positive _______ impact on host countries as a result of technology transfers.

Economic

An example of __________ is when firms benefit from each other's knowledge generation.

Externalities

According to internalization, a company would rather gain entrance into a foreign market by using....

FDI

By limiting imports through quotas, governments decrease the attractiveness of FDI and licensing.

False

T/F: A direct effect of FDI occurs when new jobs result based on the increased total spending by employees of the MNE.

False

A key benefit of FDI to a home country is from the inward flow of _________ earnings.

Foreign

A(n) __________ investment is where a firm goes to a foreign market and establishes operation.

Greenfield

The _______ view is that FDI 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.

Pragmatic nationalist

A(n) _______ is an industry made up of a limited number of large firms where there is an interdependence of the major players.

Oligopoly

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

Services

The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.

Stock

In the balance of payments, how does a country record transactions involving the export and import of its goods and services?

Current account

The fast-food industry is a good example of a business sector where licensing is a poor option for FDI.

False

One key factor that leads to adverse effects on a host country's _______ accounts is when a foreign subsidiary imports a substantial number of inputs from abroad, which results in a debit on the current account.

Balance of payment

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

Current

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

Multi-point competition

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

A key cost of FDI for the home country is when the balance of payments are adversely affected by the initial ________ outflow that is necessary to finance FDI.

Capital

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

Capital

Tracking its expenditures and its receipts from other countries occurs in a country's _________ of _________ accounts.

Balance of payments

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 a worry for ________ economies. (Choose developing or advanced)

Developing

The 2000 employees working in Toyota's factory in France are an example of the ________ effect of FDI on employment, while the 2000 new jobs that were created in support industries are an example of the ________ effect FDI on employment.

Direct; Indirect

A(n) ________ strategy is favored over exporting when transportation costs or trade barriers are prohibitive.

Foreign direct investment

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are _________ and performance requirements.

Ownership restraints

_______ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management.

Performance requirements

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

Free market