ECO 103 - EXAM 3

In the last decade, FDI inflows directed at developing nations have increased and even surpassed inflows into developed nations for the first time in 2018. Which of these developing economies was the recipient of these FDI inflows?

Former Soviet Union

______ trade is the economic policy of not discriminating against exports to or imports from foreign countries.

Free

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 is the least integrated form of economic integration?

Free trade area

A low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?

Greenfield investment

Foreign direct investment can be in the form of a(n) ______, which occurs when a firm establishes a new operation in a foreign market.

Greenfield investment

During the 1980s and early 1990s, protectionism around the world ______.

Increased

What is a feature of an oligopoly?

Interdependence of major players

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

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 TRIPS agreement is based on the notion that inadequate protection of intellectual property ___ the incentive for innovation.

Reduces

Which economist was a key figure in the early free trade movement in Great Britain?

Ricardo

GATT rules initially only dealt with trade in manufactured goods and commodities. With the increase in trade in the ______ sector, the Uruguay Round sought to establish agreements to cover this area.

Service

Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are called

Tariffs

What is considered the simplest instrument of trade policy?

Tariffs

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

The United States

Which theory of foreign direct investment attempts to combine (1) the theories that focus on favoring direct investment when exporting and licensing are available and (2) theories that say certain locations are favored over others for FDI?

The eclectic paradigm

What occurs when a company practices dumping?

The firm is unloading excess production in a foreign market.

What is a bound tariff rate?

The highest tariff rate that can be charged

In order to preserve protectionism, many countries are looking to which of these loopholes associated with antidumping?

The vague definition of dumping

How has a shift toward democratic political institutions and free market economies affected FDI?

These shifts encourage businesses to participate in FDI.

Following Brexit, Great Britain withdrew from the European Union in 2016.

True

True or False: The United States has imposed trade sanctions on other countries as a way to protect and promote human rights in those nations.

True

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

True

What international organization is involved in the governing of FDI?

WTO

With the formation of the ______ in 1995, there now is a multinational institution that has become involved in regulations governing FDI.

WTO

The stock of foreign direct investment refers to the total

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

A country's ___________ accounts track expenditures and receipts from other countries.

balance-of-payments

A government would be concerned when the country is running a ______ on the current account of their balance of payments.

deficit

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

developed

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. Multiple choice question.

direct, indirect

The ______ effects of FDI come when a multinational enterprise hires host-country citizens and ______ effects come when local suppliers hire workers as a result of the FDI.

direct; indirect

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

double

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

economic

The WTO is more successful than GATT because the WTO has ______ that make it more effective.

enforcement mechanisms

If a country places a 20 percent tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.

export tariff

Producing a good at home and then shipping it to another country for sale is called _______.

exporting

Instead of FDI, a company 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

It is in the best interest of a company to seek out a country that has ____ (restrictive or favorable?) policies toward FDI.

favorable

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

flow

GATT was put into place under the leadership of the U.S. government as a way to

foster free trade.

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

free market

A lack of barriers to the trade of goods and services among member countries is found in a(n)

free trade area.

Venezuela and Bolivia are examples of countries that have become more ______ to FDI. (Choose open or hostile.)

hostile

FDI occurs when a company invests in facilities

in a foreign country.

There has been a(n) _____ in regional economic integration in the past two decades.

increase

The ______ argument for trade intervention states that developing countries need to support new industries until they are strong enough to compete globally.

infant industry

The European Union's support for the Common Agricultural Policy illustrates why strategic trade policy is problematic. In this instance, the government was influenced by ______ to the detriment of consumers.

interest groups

The market imperfections approach is also known as the ______ theory.

internalization

Allowing a foreign firm to produce and sell your product for a royalty fee is called ______.

licensing

Assume that Green Organics Ltd. based in Phoenix, Arizona has given a British-based company the right to produce and sell its products. In return for this, the British company will pay Green Organics $1 for every unit it sells. What type of investment is Green Organics using?

licensing

Internalization theory is used to explain why a firm would prefer foreign direct investment over ______ as a strategy to enter a foreign market.

licensing

A(n) ______ states that some percentage of a good must be produced domestically.

local content requirement

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.

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

location-specific advantages

One cost to a host country related to FDI would be the _____ (gain or loss?) of sovereignty and autonomy.

loss

Exporting strategy does not work for a _____ (low or high?) value-to-weight ratio product that can be produced anywhere.

low

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

lower, increase

A government would impose administrative trade policies in order to

make it difficult for imports to enter a country.

The stalled Doha Round has caused many nations to use _____ to foster trade.

multilateral trade agreements

FDI that serves the home market is called ______ production.

offshore

A(n) ______ is a market form in which a market or industry has a limited number of large firms.

oligopoly

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

By threatening ______ trade sanctions, one country can convince another country to open its markets.

punitive

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

radical

A(n) ______ effect has occurred when a company's FDI of capital, technology, and management resources creates a positive contribution to a host country that might not otherwise be available.

resource transfer

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

A tax on imports that is designated as a fixed monetary amount per unit of import is called a(n) ______ tariff.

specific

Krugman argues that if each country seeks to follow a strategic trade policy to protect its interests, this may lead to a ______.

trade war

Unilateral lowering of trade barriers has not occurred mostly due to a lack of _____ among governments.

trust

A country might create safety standards for certain products that other nations can't comply with. As a result, these nations can't be involved with exporting parts for those goods and trade does not exist. These safety standards are a form of _____.

- Administrative trade policy

Select two potential costs of FDI for host countries.

- Adverse effects on competition - Adverse effects on balance of payments

What are two current trends in FDI? (Check all that apply.)

- An increase in FDI aimed at countries that have liberalized their FDI regimes - An increase in the volume of FDI

What are the four issues currently at the forefront of the WTO agenda?

- Antidumping policies - High tariffs on nonagricultural goods and services - Protectionism in agriculture - Lack of intellectual property protection

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

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

What are two reasons countries should remain focused on opening markets? (Check all that apply.)

- Because of high tariff rates on imports of selected goods from developing nations into developed nations - Because average tariffs on services remain higher than on industrial goods

What two positive contributions to a host country can FDI provide?

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

What are two alternatives companies can use instead of FDI to take advantage of opportunities in foreign markets?

- Exporting - Licensing

What two reasons does the text give as to why FDI has outpaced world trade and world output?

- Firms want to circumvent potential future trade barriers. - FDI has been driven by political and economic changes in developing nations.

A study of FDI by the Organization for Economic Cooperation and Development (OECD) found which two results?

- Foreign investors transferred technology to countries in which they invested. - Foreign investors invested significant amounts of capital in R&D in the countries in which they had invested.

Which two factors would reveal that a company has little bargaining power when considering FDI?

- Host government does not value what the firm has to offer - The company has a short period of time to complete negotiations

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

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

What are two benefits of FDI to a home country?

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

Protecting intellectual property, through patents, trademarks, and copyrights, fosters innovation and can lead to what two results? (Check all that apply.)

- Rising living standards - Economic growth

What are the two most common incentives governments offer to foreign firms to invest in their country? (Check all that apply.)

- Subsidies - Low-interest loans

What are three reasons that caused the global trading system erected under GATT to be strained during the 1980s and early 1990s? (Check all that apply.)

- The persistent trade deficit in the United States - The economic success of Japan - Countries found ways to get around GATT regulations

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

What are two ways trade barriers hamper a firm's productive activities? (Check all that apply.)

- They raise the cost of exporting products. - Quotas limit the ability to serve a country from outside locales.

What are two limitations on exporting?

- Transportation costs - Trade barriers

GATT negotiations continue to deal with additional issues such as (Check the three that apply.)

- intellectual property. - services. - agricultural subsidies.

In _____ Britain withdrew from the European Union following _____. Multiple choice question.

2016, Brexit

The WTO reports that approximately _____ of all antidumping actions reported involve the basic metals, chemicals, plastics, and electrical equipment industries.

70 percent

Which country has a policy that encourages FDI?

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

The _____ account tracks goods and services exports and imports in balance-of-payments accounting.

Current

Tracking exports and imports of goods and services is measured by the _____ account in balance-of-payments accounting.

Current

When the German-based company Forrest Health Supply Inc. developed operations in Italy, it built a manufacturing facility there. In turn, the new facility also imported supplies and equipment from companies based in Germany. Which home country benefit of FDI does this represent?

Employment effects

______ refers to shipping goods and services out of the jurisdiction of a country.

Exporting

When a firm invests directly in a business or venture in another country, it is called ______.

FDI

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

False