CHAPTER EIGHT

which country has shown a marked increase in FDI inflows since 2004?

China

a firm becomes a multinational enterprise when it undertakes

FDI

identify the three costs of FDI to a home country

balance of payments suffers from the initial capital outflow required to finance the FDI, current account of the balance of payments suffers if the purpose of the foreign investment is to serve to home market from a low-cost production locations, current account of the balance of payments suffers if the FDI is a substitute for direct exports

tracking exports and imports of goods and services is measure by the ___ account in balance of payments accounting

current

___ nations account for the largest share of FDI inflows

developed

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 drawback of Knickerbocker's theory is its failure to address

efficiency

what are the two types of FDI?

establishing a new operation in a foreign market, acquisition or merger with an exisitng foreign firm

___ is producing goods at home and shipping them overseas

exporting

what are the alternatives to FDI?

exporting, licensing

a key benefit of FDI to a home country is from the inward ____ of foreign earnings

flow

foreign direct investment ____ refers to the amount of investment over a given period of time

flow

the ___ of FDI describes the amount of FDI undertaken during a year

flow

the ___ stresses that resource transfers benefit the host country and help stimulat ethe host country

free market view

performance requirements are put in place to minimize the costs of FDI for the ___ country

host

Venezuela and Bolivia have become more ___ to FDI

hostile

which is true of the electric paradigm

it provides a single holistic explanation of foreign direct investment, it combines the best aspect of other theories of oreign direct investment into a single expanation

toyota prefers direct invent in a foreign entity rather than licensing. This decision stems from the fact that Toyota pioneered ___ production, which enables it to produce higher qua

lean

allowing a foreign firm to produce and sell your product for a royalty fee is called ____

licensing

the limits of ___ include giving away valuable know-how to competitiors and losing control over marketing, production and strategy

licensing

when a firm uses its own unique assets and also utilizes resource endowments or assets tied to a specific foreign georgrpahic area the firm gains _____ advantages

location specific

___ natioanlshim should be applied when the benefits of FDI are greater than the costs

pragmatic

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

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

profits

the only way a country can support a current account deficit, also known as a trade deficit, in the long-run is to

selling off assets to foreigners

the 1997 WTO agreement opened the telecommunications market to foreign competitiors and exemplifies how ____ are impacted by FDI

services

the ___ of foreign direct investment refers to the total accumulated value of foreign-owned assets of a firm at a given time

stock

critics argue that not all new jobs created by FDI represent net additions in employemtn. this is due to the ___ effect where some jobs created are offset by jobs lost elsewhere

substitution

research shows that multinational companies ____ technology when they invest ina foreign country

transfer

FDI theory suggests that exporting is preferable to licensing and FDI as long as ____

transportation costs are low, trade barriers are low

Research supports the notion that multinational firms often transfer significant technology through their FDI in a foreign country

true

When RCA licensed its color television product to a number of Japanese componies in the 1960s these companeis turned around and entered the US to directly compete with RCA and diminished its role in the market. in this situation, licensing resulted in a potential competitor

true

acquisitions are the preferred method of FDI because global markets evolve very rapidly and acquisitions are quicker to execute

true

it would be more common for a ___ to agree to market aggressively as a way of keeping foreign competitors in check

wholly owned subsidiary

what is the name of an investment by a business to establish new operations in a foreign country?

Greenfield

to encourage FDI many countries have eliminated ___ taxation of foriegn income

double

a country that wishes to promote FDI would be likely to restrict access by foreign investors

false

when FDI occurs through greenfield investment, this will lower competition in a market and decrease economic welfare

false

when tight control over a foreign entity is the goal of a company, it is in the best interest of that compnay to foge a licensing agreement rather than use foreign direct invesment

false

increased competition could ___ investments by firms in pant, equipment and R&D as firms try to gain a competitive advantage over their rivals

increase

this theory explains why firms may prefer exporting to licensing as a means of entereing foreign markets

internalization

what are some of the advantages of FDI

it allows the firm to maintain control over technological know-how, it overcomes high transportation costs, it allows for tight control over the firm's operations

exporting strategy does not work for a ____ value-to-weight ratio produced that can be produced anywhere

low

WOTF are examples of location-specific advantages as categorized by the eclectic paradigm

natural resources, human resources

a(n) ____ is an industry made up of a limited number of large firms where there is an interdepence of the major players

oligopoly

___ of FDI describes the flow of FDU out of a country

outflows

what are two measures counrties can employ to restrict foreign direct investment

ownership restraints and performance requirements

at one time, Britain ___ Britain companies' foreign earnings at a higher rate than their domestic earnigns to restrict FDI

taxed

when two or more enterprises encounter each other in different regional markets, natioanl markets, or industries it is called __ competition

multipoint

the situation where multiple firms encounter each other in different regional markets, national markets or industries is called

multipoint competition

Historically countries like Iran and India that are more ___ than ____ have favored the radical position that FDI is bad

nationalistic, socialistic

which type of production occurs when FDI is undertaken to serve the home country?

offshore

businesses should seek out a country that has ____ policies towards FDI

permissive

a number of investor countries try to encourage FDI through the use of ___ persuade host countires to ease restrictions on inbound FDI

politcal influence

some countries prohibit national firms from investing in specific countries for __ reasons, such as U.S. firms being prohibitied from investing in Cuba

political

what positive contributions to a host country can FDI provide?

supplying capital technology, and management resources that would otherwise not be available and thus boost that country's economic growth rate

countries can use various trade barriers to impact another country's exports by putting ___ on imports to raise the price and/or establish ___ to control the quantity of goods imported

tariffs, quotas

tax concessions can be used by a government to encourage foreign firms to do business in the country

true

when a foreign investor acquires two or more firms in a host country and then proceeds to merge themm , it could result in monopoly power for the foreign investor

true

greenfield investing spurs competition by increasing the number of players in a market and this will tend to ___ prices and ____ economic welfare

lower/ increase

The U.S. Department of Commerce states that once a business undertakes foreign direct investment it becomes a(n)

multinational enterprise

the ___ paradigm is based on the way location affects the direction of a company's forieng direct investment

eclectic

firms for which licensing is NOT a good option are clustered in which three of the following industries

high technology industries, global oligopolies, intense cost pressures require mulitnational firms maintain tight control over foreign operations

the US, UK, Netherlands, France, Germany, and Japan together have accounted for ___ of all FDI outflows for 1998-2012

60%

the British economist John Dunning argues in his ___ paradigm that location-specific advantages are improtant in analyzing FDI

eclectic

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

free market

when a company moves operations overseas to take advantage of lower labor costs, this strategy increases the overall efficiency of resources utilization in the global economy. this proves an assertion of the ___ view of FDI

free market

earnings from a foreign subsidiary to the parent company are recorded as ____ on the balance-of-payments accounts

capital outflow

the text notes two reasons why FDI has outpaced world trade and world output. WOTF reasons are noted

despite the decline in trade barriers firms still fear protectionist pressures, much of the increase in FDI has been driven by the politcal and economic changes that have been occuring in may of the worlds devleoping

the 2,000 employees working in Toyota's factory in France are an example of the ___ effect of FDI on employement, while the 2,000 new jobs that were created in support industires are an example of the ___ effect of FDI on employment

direct/ indirect

economists refer to knowledge "spillovers" as _____ and there is a theory that suggests firms can benefit from these "spillovers" by locating close to their source

externalities

Knickerbocker's theory is attractive because of its explanation of why FDI is more efficient than exporting for expanding abroad

false

what is it called when a company directly invests in facilities to produce or market in a foreign country

foreign direct investment

what are the limitations of licensing?

gives away valuable know-how to a potential competitor, firm does not have tight control over producting, marketing and strategy in a foreign country

In a world in which firms from all advanced nations are investing in each other's markets, it is generally ___ for one country to hold another to "economic ransom" without hurting itself

impossible

after Toyota decided to open a new auto plant in france, it was suggested that 2,000 jobs in support industries would be created. Since these jobs are not located at the auto plant, they are examples of a/an ___ effect of FDI

indirect

___ argued that firms follow the same imitative behavior in their FDI strategies as oligopolies follow

Knickerbocker

which of the following companies demonstrates a successful licensing or franchising strategy?

Mcdonalds

what international organization is involved in the governing of FDI?

WTO

when the ___ was established in 1995, it provided a source of governance for FDI

WTO

what two factors cause major adverse effects on a host country's balance of payments?

a foreign subsidiary importing a large number of inputs from abraod, the outflow of earnings from a foreign subsidary to its parent company

what are the three potential costs of FDI to host countries

adverse effects on the balance of payments, perceived loss of national sovereignty and autonomy, arise possible adverse effects on competition within the host nation

what are two current trends in FDI?

an increase in FDI aimed at countries that have liberalized their FDI regimes, an increase in the volume of FDI

tracking its expenditures and its receipts from other countries is a country's _____ of ____ accounts

balance of payments

what are some of the advantages of FDI?

it overcomes high transportation costs, it allows the firms to maintain control over technological know-how, it allows for tight control over the firm's operations