Chapter 8

Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades?

FDI has accelerated faster than world trade growth

___ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries

Knickerbocker's theory

Which of the following is an example of a greenfield investment?

a Chinese sugar maker sets up a sugar crushing facility in Cuba

Host country citizens that are employed by an MNE following an FDI are an example of

a direct effect

An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of

an acquisition

FDI can benefit the home country's ___ if the foreign subsidiary creates demands for home-country exports of capital equipment, intermediate goods, complementary products, and the like

balance of payments

A country's ___ accounts keep track of both its payments to and its receipts from other countries

balance-of-payments

A country's ___ keep track of its payments to and its receipts from other countries

balance-of-payments accounts

Why is it said that not all the new jobs created by FDI represent net additions in employment?

because jobs created by an investment may be offset by the jobs lost in domestic companies

The pragmatic nationalist view highlights ___ of FDI

both the benefits and costs

How can FDI undertaken to serve the home market stimulate economic growth in the home country?

by freeing home-country resources to concentrate on activities where the home country has a comparative advantage

How is the adverse effect of the balance of payments for the home country due to FDI usually offset?

by the subsequent inflow of foreign earnings

Recent years have seen ___ in the number of countries that adhere to a radical ideology regarding FDI

decline

For the home country, the current account of the balance of payments improves if the purpose of the foreign investment is to serve the home market from a low-cost production location.

false

Governments normally are concerned when their country is running a surplus on the current account of their balance of payments.

false

Licensing is usually a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance

false

Offshore production refers to FDI undertaken to serve the host market.

false

One way countries have encouraged firms to undertake FDI is through double taxation.

false

Rivals rarely imitate what a firm does in an oligopoly.

false

What primarily explains why developing nations are characterized by a lower percentage of cross-border mergers and acquisitions compared to developed nations?

fewer target firms to acquire in developing nations

The ___ of FDI refers to the amount of FDI undertaken over a year

flow

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

franchising

Which view of FDI traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo?

free market

When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that

have a low value-to-weight ratio

From the perspective of a firm negotiating the terms of an investment with a host government, the firm's bargaining power is high when the

host government places a high value on what the firm has to offer

In which of the following situations would FDI improve the current account of the host country's balance of payments?

if the FDI is a substitute for imports of goods or services

Which of the following is a major drawback of using Knickerbocker's theory in explaining FDI?

it does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license

Which of the following observations concerning Knickerbocker's theory is true?

it does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license

What has made the United States an attractive target for foreign direct investment?

its wealthy domestic consumer markets

A French wind power company gives an Indonesian company the right to produce and sell wind turbines in return for a royalty fee on every unit sold. Which business practice is this an example of?

licensing

As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is between FDI and

licensing

___ occurs when a firm legally allows the right to produce its product, to use its production processes, or to use its brand name or trademark to another firm

licensing

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

location-specific advantages

The majority of cross-border investment in the developed world is in the form of

mergers and acquisitions

___ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries

multipoint competition

An 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

What is the primary reason Africa has attracted FDI in recent years?

raw material availability

Which of the following is a home-country policy aimed restricting outward FDI flow?

taxing domestic companies' foreign earnings at a higher rate than their domestic earnings

Since World War II, the largest source country for FDI has been

the United States

___ argues that FDI is a benefit to both the source country and the host country

the free market view

___ traces its roots to Marxist political and economic theory

the radical view

Which of the following arises when a country is importing more goods and services than it is exporting?

trade deficit

Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios?

transportation costs

An oligopoly is an industry composed of a few large firms with somewhat equal market share.

true

By placing tariffs on imported goods, governments can increase the cost of exporting relative to foreign direct investment and licensing

true

By placing tariffs on imported goods, governments increases the cost of exporting relative to foreign direct investment and licensing.

true

In general, FDI in the form of greenfield investments should increase competition.

true

Indirect effects of the FDI arise 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.

true

John Dunning pioneered the electric paradigm.

true

Mergers and acquisitions are quicker to execute than greenfield investments.

true

Research supports the view that multinational firms often transfer significant technology when they invest in a foreign country.

true

The WTO supports the promotion of international trade in services.

true

The amount of foreign direct investment (FDI) undertaken over a given time period is known as the flow of FDI.

true

According to Knickerbocker's theory

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

In which of the following situations does the internalization theory recommend FDI as opposed to licensing?

when the firm needs tight control over a foreign entity

Which of the following factors has had a positive effect on the volume of foreign trade investments?

world economy globalization