Global Test 2

A firm has full outright stake in an acquisition when it acquires:

100 percent of a company

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

False, By limiting imports through quotas, governments increase the attractiveness of FDI and licensing. For example, the wave of FDI by Japanese auto companies in the United States during the 1980s and 1990s was partly driven by protectionist threats from Congress and by quotas on the importation of Japanese cars. For Japanese auto companies, these factors decreased the profitability of exporting and increased that of foreign direct investment.

With developed nations still accounting for the largest share of FDI inflows, FDI into developing nations has steadily decreased over the past decade.

False, Even though developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased. From 1985 to 1990, the annual inflow of FDI into developing nations averaged $27.4 billion. In the mid- to late 1990s, the inflow into developing nations was generally between 35 and 40 percent of the total, before falling back to account for about 25 percent of the total in the 2000-02 period and then rising to 31 to 40 percent between 2004 and 2008.

In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a corresponding fall in nontariff barriers

False, A fall in tariff barriers in recent decades has been accompanied by a rise in nontariff barriers, such as subsidies, quotas, voluntary export restraints, and antidumping duties.

In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.

False, Against the background of rising pressures for protectionism, in 1986 GATT members embarked on their eighth round of negotiations to reduce tariffs, the Uruguay Round. Until then, GATT rules had applied only to trade in manufactured goods and commodities. In the Uruguay Round, member countries sought to extend GATT rules to cover trade in services.

The Smoot-Hawley Act was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, and import quotas.

False, Aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products, the Smoot-Hawley Act erected an enormous wall of tariff barriers.

Free trade refers to a situation where a government, through quotas or duties, attempts to influence what its citizens can buy from another country, or what they can produce and sell to another country.

False, Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country.

Administrative trade policies are bureaucratic rules that are designed to make it easy for imports to enter a country.

False, In addition to the formal instruments of trade policy, governments of all types sometimes use informal or administrative policies to restrict imports and boost exports. Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country.

According to Michael Porter, factor endowments can be affected by subsidies, policies toward capital markets, and policies toward education.

Porter contends that government can influence each of the four components of Porter's diamond—either positively or negatively. Factor endowments can be affected by subsidies, policies toward capital markets, policies toward education, and so on.

The infant industry argument is the oldest economic argument for government intervention.

True

Japan has a long history of supporting inefficient domestic producers with farm subsidies.

True, Agriculture tends to be one of the largest beneficiaries of subsidies in most countries. Japan has long history of supporting inefficient domestic producers with farm subsidies. Even the European Union and the U.S. are not exempt from this rule.

Largely discredited and primitive, mercantilism still influences the trade policies of many countries today.

True, Although mercantilism is an old and largely discredited doctrine, its echoes remain in modern political debate and in the trade policies of many countries.

Brazil's auto industry, once the world's tenth-largest and built behind tariff barriers and quotas, has been proven to be one of the world's most inefficient.

True, Brazil built the world's tenth-largest auto industry behind tariff barriers and quotas. Once those barriers were removed in the late 1980s, however, foreign imports soared, and the industry was forced to face up to the fact that after 30 years of protection, Brazil had one of world's most inefficient industry.

Dumping is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

True, Dumping is defined as selling goods in a foreign market at below their costs of production or "fair" market value. Dumping is viewed as a method by which firms unload excess production in foreign markets.

The United States wanted the WTO to allow governments to impose tariffs on goods imported from countries that did not abide by what the United States saw as fair labor practices during a WTO meeting at the end of November 1999.

True, During the Seattle round of WTO talks, the United States wanted the WTO to allow governments to impose tariffs on goods imported from countries that did not abide by what the United States saw as fair labor practices. Representatives from developing nations reacted angrily to this proposal, suggesting it was simply an attempt by the United States to find a legal way of restricting imports from poorer nations.

The individual firm should invest substantial financial resources in trying to build a first-mover advantage, even if that means several years of losses before a new venture becomes profitable.

True, Individual firms should realize that it pays to invest substantial financial resources in trying to build a first-mover or early-mover advantage even if that means several years of losses before a new venture becomes profitable. The idea is to preempt the available demand, gain cost advantages related to volume, build an enduring brand ahead of later competitors, and, consequently, establish a long-term sustainable competitive advantage.

Embracing a free trade regime for an advanced economy often implies that the country will produce less of some labor-intensive goods and more of some knowledge-intensive goods.

True, Resources do not always shift quite easily from producing one good to another. A certain amount of friction is involved in cases where embracing a free trade regime for an advanced economy often implies that the country will produce less of some labor-intensive goods and more of some knowledge-intensive goods.

Tariffs are the instrument that the GATT and WTO have been most successful in limiting.

True, Tariffs are the instrument of trade policy that GATT and WTO have been most successful in limiting.

The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more pioneering firms to produce that good.

True, The new trade theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good. Because they are able to gain economies of scale, the first movers in an industry may get a lock on the world market that discourages subsequent entry.

The Multi-Fiber Agreement (MFA) of 1974 fixed upper limits on exports of textiles from all major exporting countries to all major importing countries. The MFA is an example of:

Voluntary export restraint

If 3M, an American firm, produces adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea to be sold, that is an example of:

exporting

A hardware manufacturing firm from the United States invests directly in an assembling plant for laptops in Taiwan. This is an example of:

foreign direct investment

A study of FDI by the Organization for Economic Cooperation and Development (OECD) found that foreign investors invested significant amounts of capital in R&D in the countries in which they had invested. According to the text, this finding of the study suggests that:

foreign firms are transferring, upgrading or creating new technology in those countries

Walmarts move into Japan is considered to be

horizontal FDI

A critical competitive feature of oligopolistic industries is the _____ of the major players.

interdependence

According to internalization theory, licensing has three major drawbacks as a strategy for exploiting foreign market opportunities. Each of the following is a drawback of licensing except:

licensing helps a firm avoid making a direct foreign investment in a foreign country.

The viability of an exporting strategy is often constrained by transportation costs, particularly of products (as we saw in the case example on Cemex)that have a _____ and that can be produced in almost any location.

low value-to-weight ratio

To encourage inward FDI, it is increasingly common for governments to:

offer tax concessions to firms that invest in their countries.

An industry composed of a limited number of large firms (i.e. an industry in which four firms control 80 percent of a domestic market) is referred to as a(n):

oligopoly

The stock of foreign direct investment refers to:

the total accumulated value of foreign-owned assets at any time

Countries such as the U.S., the U.K., the Netherlands, and Germany had a long history as _____ and naturally looked to foreign markets to fuel their economic expansion.

trading nations Countries such as the U.S., the U.K., France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals. Many of these countries also had a long history as trading nations and naturally looked to foreign markets to fuel their economic expansion.

The difference in growth rates between Ghana and South Korea since 1970 can be attributed to

Both countries' attitudes towards international trade

The two US agencies that deal with antidumping complaints are the:

Commerce Department and the International Trade Commission

Ad valorem tariffs reduce the cost of imported products relative to domestic products.

False

This account in the balance of payments, records transactions involving the export and import of goods and services.

Current account

According to Porter, both advanced factor endowment and basic factor endowments are equally significant for competitive advantage.

False, Michael Porter argues that advanced factors are the most significant for competitive advantage. The benefits of investments in advanced factors of production by related and supporting industries can spill over into an industry, thereby helping it achieve a strong competitive position internationally. Unlike the naturally endowed basic factors, advanced factors are a product of investment by individuals, companies, and governments.

Mercantilism, as advocated in the 16th and 17th centuries, believed that countries should simultaneously encourage both imports and exports.

False, Propagated in the sixteenth and seventeenth centuries, mercantilism advocated that countries should simultaneously encourage exports and discourage imports.

David Ricardo's theory of comparative advantage was the first to explain why unrestricted free trade is beneficial to a country.

False, Proposed in 1776, Adam Smith's theory of absolute advantage was the first to explain why free trade is beneficial to a country.

Smith, Ricardo, and Heckscher-Ohlin suggest that a country's economy would gain only if its citizens buy products that are made in that country.

False, The theories of Smith, Ricardo, and Heckscher-Ohlin tell us that a country's economy may gain if its citizens buy certain products that could be produced at home from other nations.

FDI was governed by the GATT until the 1990s.

False, Until the 1990s, there was no consistent involvement by multinational institutions in the governing of FDI. This changed with the formation in 1995 of the World Trade Organization, which has become involved in regulations governing FDI.

In the 1960s, RCA licensed its leading-edge color television technology to a number of Japanese companies, which later took over the market. This demonstrates:

Licensing may result in a firm's giving away valuable technological know-how to a potential foreign competitor.

Which of the following is a possible adverse effect of FDI on a host country's balance-of-payments position?

Subsequent outflow of earnings from the foreign subsidiary to its parent company

Ghana's anti trade policy destroyed the Ghanaian economy because farmers

Switched to the production of subsistence food stuffs.

Climate and natural resource endowments explain all of the following happening, EXCEPT:

Switzerland exporting watches.

How did U.S. Magnesium justify its dumping claim against Russian and Chinese producers?

These producers are selling in the US below the cost of production of these goods

The only way in which a current account deficit can be supported in the long run is by:

selling assets to foreigners.