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
