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.