BUS5 187: Smartbook Chp 8/9

Until the collapse of ______ between 1989 and 1991, the countries of eastern Europe were opposed to FDI

communism

It is the job of the _______ commissioner of the EU to ensure that no one enterprise uses its market power to monopolize markets.

competition

One of the first steps to economic and political integration is a(n) ______ union, where trade barriers among member nations are removed and a common trade policy is adopted.

customs

Select all that apply: What are two common incentives governments offer to foreign firms to invest in their country?

1. subsidies 2. low-interest loans

What was the main impetus for the creation of the Single European Act?

frustration that the EC had failed to remove trade barriers and harmonize technical and legal standards

Performance requirements are put in place to minimize the costs of FDI for the _____ country

host

What is an accurate characterization of the status of the euro since 2008?

it has weakened

One potential benefit to consumers related to offshore production is

lower prices for goods

The main job of the competition commissioner for the European Union is to regulate business in order to prevent

monopolies

Historically countries like Iran and India that are more _____ and _______ have favored the radical position that FDI is bad.

nationalistic, socialistic

Regional trade blocs can possibly occur in markets that are protected from outside competition because ________ barriers are in place, and the WTO does not cover some of these types of barriers.

nontariff

FDI that is pursued to serve the home market is called ______ production.

offshore

A(n) _______ union consists of a central governing body that regulates the economic, social, and foreign policy of member states.

political

Some countries prohibit national firms from investing in specific countries for _______ reasons, such as US firms being prohibited from investing in Cuba.

political

Ownership restraints and performance requirements are two ways in which governments can ________FDI.

restrict

Economic theories suggest that free trade allows countries to

specialize in producing goods and service that they are most efficient at producing

How has the flow of FDI compared to the growth in world trade since 1990?

the flow of the FDI has been slower than the growth in world trade

What is the term for when lower-cost external suppliers are replaced by higher-cost suppliers within a free trade zone?

trade diversion

True or false: One way a government can encourage FDI is to offer a foreign firm a tax concession if it chooses to do business in that country.

true

Which country was a favorite target for FDI inflows during the 1980s and 1990s?

united states

The eurozone is made up of the European Union members who

use the euro as currency

Select all that apply: What are three methods used to achieve economic integration?

1. economic union 2. common market 3. customs union

Select all that apply: The text notes two reasons why FDI has outpaced world trade and world output. What are those two reasons?

1. even though trade barriers are diminishing firms still fear protectionist pressures 2. FDI has been driven by political and economic changes in developing nations

Select all that apply: A study of FDI by the Organization for Economic Cooperation and Development (OECD) found what two resource-transfer effects?

1. foreign investors invested significant amounts of capital in R&D in the countries in which they had invested 2. foreign investors transferred technology to countries in which they invested

Select all that apply: What are two examples of location-specific advantages as categorized by the eclectic paradigm?

1. human resources 2. natural resources

Select all that apply: What are three advantages of FDI?

1. it helps overcome high transportation costs 2. it allows for tight control over a firm's operations 3. it allows a firm to maintain control over technological know-how

Select all that apply: What are two proposals associated with the Single European Act?

1. lift barriers to competition in retail banking 2. apply principles of mutual recognition

Following the devastation of two world wars in Europe, the ______was established as a means to reach lasting peace.

European Union

Which is TRUE for firms considering foreign direct investment?

The host government's attitude toward FDI should be an important variable in decisions about where to invest.

While the EU is seen as an economic union, it is considered imperfect because not all members of the EU have

adopted the same currency

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 payments

What country in Latin America has been the highest recipient of inward FDI in recent years?

brazil

One of the changes proposed by the Single European Act was to abolish the restrictions placed on foreign truckers who pick up and deliver goods within another member's state borders. This hauling process is known as

cabotage

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 plants, equipment, and R&D as a result of increased competition, it is engaging in ________ investment.

capital

______ has become a major recipient of FDI and hit a record of $149 billion in 2020.

china

A(n) _______ market includes the aspects of a customs union and allows factors of production to move freely among members.

common

A(n) ______ union adds more economic integration to a common market by requiring a common currency, a common monetary and fiscal policy, and harmonization of tax rates

economic

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

economic

True or false: Today, many countries have an open stance toward foreign direct investment.

false

True or false: When FDI occurs through greenfield investment, this will lower competition in a market and decrease economic welfare.

false

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

foreign

Dell moved its assembly operations for many of its personal computers to Mexico to take advantage of lower labor costs. The _______ _______ view of FDI states that overall efficiency of resource utilization increases in the world economy.

free market

In terms of economic integration, the least integrated level of integration is a(n)

free trade area

In which level of economic integration are all barriers to trade among member countries removed?

free trade area

Lauren's company is eager to trade with Canada because there are no quotas or subsidies on the product they want to sell there. This describes a

free trade area

Increased competition could _______ capital investments by firms in plants, equipment, and R&D as firms try to gain a competitive advantage over their rivals.

increase

Select all that apply: What are two characteristics of a common market?

1. no barriers to trade among member countries 2. free movement of labor and capital

Select all that apply: What are the three potential costs of FDI to host countries?

1. perceived loss of national sovereignty & autonomy 2. adverse effects on competition 3. adverse effects on balance of payments

Select all that apply: What are two measures countries can employ to restrict foreign direct investment?

1. performance requirements 2. ownership restraints

Select all that apply: What are two broad issues that should be considered concerning negotiations with host governments regarding FDI?

1. the concessions the firm must make to be allowed to invest 2. the incentives the host government is prepared to offer to the firm

What is a benefit of inward FDI for a host country?

employment effect

True or false: The European Union is an example of a fully-formed political union.

false

True or false: The Single European Act was enacted after the European Community had removed all barriers to the free flow of trade among member countries.

false

True or false: The greater the number of countries involved in economic integration, the easier it is to reach an agreement among the countries.

false

True or false: The pragmatic nationalism view contends that FDI has no costs, but many benefits.

false

Businesses should seek out a country that has ______ policies toward FDI.

lenient

When ownership restraints are used to restrict FDI, it is based on the idea that ______ owners can help maximize the employment benefits of FDI for the host country.

local

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

lower, increase

What is a potential adverse impact on competition when a foreign entity acquires firms in a host country?

monopoly

A number of investor countries try to encourage FDI through the use of ________

political influence

Economic theories point toward the idea that all participating countries will gain from regional integration. In other words, it is a ______-sum game.

positive

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 free markets

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

One result of _______ effects is that the net number of new jobs created by FDI may not be as large as initially claimed.

substitutions

A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some US and Canadian workers in the ________ industry following the establishment of NAFTA.

textile

Select all that apply: What are three characteristics of an economic union?

1. a common monetary and fiscal policy 2. coordinated tax rates 3. a common currency

Select all that apply: What are two current trends in FDI?

1. an increase in FDI aimed at countries that have liberalized their FDI regimes 2. an increase in the volume of FDI

Select all that apply: Identify the three costs of FDI to a home country.

1. balance of payments negatively affected of FDI is a substitute for direct exports 2. balance of payments negatively affected if purpose of FDI is to develop a low-cost production location 3. balanced of payments negatively affected initially from the capital outflow to fund FDI

Select all that apply: The text notes three specific reasons why the EU is considered an imperfect economic union. What are those three reasons?

1. there is a difference in tax rates across the countries 2. not all members have adopted the same currency 3. some markets are still not fully deregulated

Regional economic integration is most likely to take place between

a limited number of adjacent countries

To encourage FDI, many countries have eliminated ______ taxation of foreign income.

double

What is the name of the financial institution established in the EU to ensure price stability and is intended to be independent from political pressure?

european central bank

True or false: Direct effects of FDI 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 multinational enterprise.

false

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

foreign direct investment

Dunning's eclectic paradigm is seen as a useful addition to explaining patterns of FDI because it explains how ________ factors affect the direction of FDI

location

A customs union is put in place to

regulate foreign trade policy among members

Select all that apply: What are two benefits of FDI for a host country?

1. economic growth 2. resource-transfer effects

Trade diversion takes place when ______ (lower or higher?) -cost external suppliers are replaced by ______ (lower or higher?) -cost suppliers within a free trade area.

1. lower 2. higher

Select all that apply: The increase in competition in the national telecommunications market that resulted from the 1997 World Trade Organization agreement resulted in what two benefits?

1. modernization of telephone networks 2. lower prices

What is an accurate summary of the rationale behind the free market view?

FDI is a benefit to both the source country and the host country

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

developing

A host country cost of FDI could be the ________ of sovereignty and autonomy

loss

One of the first steps to economic and political integration is a(n) ________ union, where trade barriers among member nations are removed and a common trade policy is adopted.

customs

Past activity of FDI shows that the majority of it has been directed at

developed nations

The 2,000 employees working in Toyota's factory in France are an example of the ________ effect of FDI on employment, while the 2,000 new jobs that were created in support industries are an example of the ________ effect of FDI on employment.

direct, indirect

One way to deal with euro economies that are NOT growing in unison is to engage in fiscal transfers, which involves taking money from _____ and giving it to areas that are not as successful.

prosperous regions

The 1997 World Trade Organization agreement opened the telecommunications market to foreign competitors and exemplifies how ______ are impacted by FDI.

services

The European Commission is one of the institutions responsible for establishing the ________ policies of the EU.

economic

At one time, the British advanced corporation tax system taxed British companies' foreign earnings at a higher rate than their domestic earnings. This was put in place to

encourage companies to invest at home

Select all that apply: What are the four main political institutions of the EU?

1. Council of the European Union 2. European Commission 3. European Parliament 4. Court of Justice

Select all that apply: The European Union is a product of what two political factors?

1. Europe's desire to be seen as a major player in world politics and economics 2. the effects of two world wars on western Europe

Select all that apply: Choose the three benefits of FDI to a home country.

1. MNE learns skills form exposure to foreign market 2. inward flow of foreign earnings 3. foreign subsidiary created demand for home-country exports

Select all that apply: What two countries have shifted to a more hostile approach to FDI?

1. Venezuela 2. Bolivia

Select all that apply: What are two impediments to establishing economic integration?

1. concerns over national sovereignty 2. potential job losses

Select all that apply: What are two benefits of a common currency in the European Union?

1. easier to compare prices across Europe 2. savings from handling just one currency

Since the WTO has a limited scope, the risk remains that regional economic integration will result in trade

diversion

A(n) ________ union adds more economic integration to a common market by requiring a common currency, a common monetary and fiscal policy, and harmonization of tax rates

economic

Select all that apply: What two factors cause major adverse effects on a host country's balance of payments?

1. the outflow of earnings from a foreign subsidiary to its parent company 2. a foreign subsidiary importing a large number of inputs from abroad