Chapter 8

What are two potential costs of FDI to host countries? (Check all that apply.)

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

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

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

The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons?

Despite the decline in trade barriers, firms still fear protectionist pressures. FDI has been driven by political and economic changes in developing nations.

Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?

Free market

What are two characteristics of the eclectic paradigm? Choose all that apply.

It provides a single holistic explanation of foreign direct investment It combines the best aspects of other theories of foreign direct investment into a single explanation

Identify two benefits of FDI to a home country. (Check all that apply.)

MNE learns skills from exposure to foreign market Foreign subsidiary creates demand for home-country exports

True or false: Tax concessions can be used by a government to encourage foreign firms to do business in that country.

True

What country has been the largest source of FDI since World War II?

United States

The stock of foreign direct investment refers to the total

accumulated value of foreign-owned assets at a given point in time.

In the past, most foreign direct investment has been directed at _____ nations.

developed

The shift toward more democratic political institutions and free market economies has _____ foreign direct investment.

encouraged

The of FDI is the amount of FDI attempted over a period of time (usually one year).

flow

The ability of an individual, company, or economy to conduct an activity better than another for reasons related to location is called a(n)

location-specific advantage.

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

loss

FDI that serves the home market is called ______ production.

offshore

The _____ view of foreign direct investment has its basis in Marxist theory.

radical

An example of the pragmatic nationalist view is that the host country can gain in jobs and skills and the profits go to the ______ country.

source

What are two alternatives to FDI? (Check all that apply.)

Exporting Licensing

Which country has a policy that encourages FDI?

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

What are the two main types of FDI? (Check all that apply.)

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

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

A form of FDI, other than greenfield investments, is to

acquire or merge with an existing company in the foreign country.

FDI occurs when a company invests in facilities

in a foreign country.

The board of directors of Green Garden Supply in Vermont voted to invest in a production facility in Mexico as a way to lower costs and free up financial resources for the company to grow in other areas. What form of FDI is this company using?

offshore production

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

Identify two costs of FDI to a home country. (Check all that apply.)

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

The United States, the United Kingdom, the Netherlands, France, Germany, and Japan together have accounted for the majority of all FDI outflows for 1998-2018 for what two reasons?

They were the most developed nations with the largest economies in the postwar period. They provided the base for many of the largest and best-capitalized businesses.

The ______ argues that combining location specific assets or resource endowments and the firm's own unique assets often requires FDI.

eclectic paradigm

When Crane Automotive Group developed operations in Italy, it not only built a manufacturing plant there but also imports parts from several other European nations. Which home country benefit of FDI does this represent?

employment effects

As an alternatives to FDI, firms could choose ______, which involves producing goods at home and shipping them overseas, or ______, which is granting a foreign firm the right to produce and sell a product in return for a royalty fee.

exporting; licensing

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

free market

What are two reasons the United States has been an attractive target for FDI?

large domestic markets stable economy

John Dunning proposed that ______ are an important factor when explaining the nature of foreign direct investment.

location-specific advantages

A key cost of FDI for the home country is when the balance of payments is adversely affected by the initial capital required to finance the FDI. (choose inflow or outflow)

outflow

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

profits

The theories of FDI try to show: (Check all that apply.)

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