Chapter 8: Foreign Direct Investment

Ion the balance of payments, how does a country record transactions involving the export and import of its goods and services?

Current account

Identify the correct statement regarding the direction of FDI inflows.

Developed nations still account for the largest share of FDI inflows.

The location-specific advantages argument associated with John Dunning explains why firms prefer FDI to licensing or to exporting. T/F

False

According to the ________ view, international production should be distributed among countries according to the theory of comparative advantage.

free market

Computer Contractors has given a foreign entity the right to produce and sell its computer parts in return for a royalty fee on every unit sold. This is called

licensing

Five airlines control 90 percent of the aviation sector of a country. The aviation industry in the country would be an example of a(n)

oligopoly

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ________ and performance requirements.

ownership restraints

The ________ view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.

pragmatic nationalist

Johan's company has made a greenfield investment. What does this mean?

It established a new operation in a foreign country.

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

Limiting capital outflows

A Chinese petroleum company sets up a crude oil refining facility in Vietnam. This is an example of a greenfield investment. T/F

True

According to the radical political ideology view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. T/F

True

Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens. T/F

True

Offshore production refers to FDI undertaken to serve the home market. T/F

True

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

When a foreign subsidiary imports a substantial number of its inputs from abroad

By limiting imports through quotas, governments decrease the attractiveness of FDI and licensing. T/F

False

The fast-food industry is a good example of a business sector where licensing is a poor option for FDI. T/F

False

________ theory is also known as the market imperfections theory.

Internalization

________ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management.

Performance requirements

The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.

stock