International Ch 8

___ gives a firm tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.

Foreign direct investment

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

Licensing would be a good option for firms in which of the following industries?

In fragmented, low-technology industries in which globally dispersed manufacturing is not an option.

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

Which of the following best describes an industry composed of a limited number of large firms?

an oligopoly

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 _____ keep track of both its payments to and its receipts from other countries.

balance of payments accounts

A country's _____ keeps track of its payments to and its receipts from other countries.

balance of payments accounts

Host country citizens that are employed by an MNE following an FDI are an example of a(n) _____ of FDI

direct effect

The _____ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located

eclectic paradigm

Which of the following primarily explains why developing nations are characterized by lower percentage of cross-border mergers and acquisitions compared to developed nations?

fewer target firms to acquire in developing nations

Which of the following factors has made the United States an attractive target for foreign direct investment?

its wealthy domestic 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 domestic firm legally allows a foreign firm the right to produce its product, to use its production processes, or to use its brand name or trademark.

licensing

Recent years have seen a _____ in the number of countries that adhere to a radical ideology regarding FDI

marked decline

____ argues that FDI is a benefit to both the source country and to the host country.

the free market view

A country rejects FDI proposals in certain industries. It does so because the tangible advantages of such investments are lesser than potential costs like loss of employment and reduction of overall well-being. However, it aggressively pursues inviting foreign investments in sectors like infrastructure, education, and healthcare because of the benefits that accrue with them. Which political view of FDI is discussed in this example?

the pragmatic nationalist view

Which political view allows FDI so long as the benefits outweigh the costs?

the pragmatic nationalist view

___ traces its roots to Marxist political and economic theory

the radical view

The free market view argues that international production should be distributed among countries according to the ____

theory of comparative advantage

the stock of FDI is the

total accumulated value of foreign owned assets at a given time

Which of the following arises when a country is importing more goods and services than it is exporting?

trade deficit

Which of the following arises when a country is exporting more goods and services than it is importing?

trade surplus

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

What is the term that describes when two or more enterprises encounter each other in different regional markets, national markets, or industries?

Multippoint competition

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

Taxing domestic companies' foreign earnings at a higher rate than their domestic earnings

Which of the following factors has had a positive effect on the volume of foreign trade investments?

World economy globalization

Developing nations currently account for _____ of FDI in the form of cross-border mergers and acquisitions.

about one-third or less

A Japanese car manufacturer acquires an Italian producer of car tires. This is an example of a(n) _____.

acquisition

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

Which of the following is a way in which governments increase the attractiveness of FDI and licensing relative to exporting?

by implementing import quotas

How is the adverse effect of the balance of payments for the home country due to an FDI usually offset?

by the subsequent inflow of foreign earnings

If the FDI is a substitute for imports of goods or services, the effect can be to improve the _____ of the host country's balance of payments.

current account

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

In which way can the source country's balance of payments benefit from an FDI made in a foreign country?

from the inward flow of foreign earnings

Which of the following summarizes the total amount of resources invested in factories, stores, office buildings, and the like?

gross fixed capital formation

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

Which of the following is a direct consequence of the interdependence between firms in an oligopoly?

imitative behavior

Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets

internalization theory

Which branch of economic theory seeks to explain why firms often prefer FDI over licensing as a strategy for entering foreign markets?

internalization theory

____ seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

internalization theory

FDI occurs when a firm

invest directly in facilitates to produce a product in a foreign country.

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

____ arise(s) from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets

location-specific advantages

The majority of cross-border investment in the developed world is in the form of _____

mergers and acquisitions

When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?

mergers and acquisitions are quicker to execute than greenfield investments

____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

multipoint competition

_____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

multippoint competition

FDI undertaken to serve the home market is known as:

offshore production

The two most common methods of restricting inward FDI are ownership restraints and _____.

performance requirements

Through their choice of policies, home countries can both encourage and restrict FDI by local firms. Policies designed to encourage outward FDI include which of the following?

political pressure

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

The _____ and Knickerbocker's theory of FDI tend to be less useful from a business perspective because they are descriptive rather than analytical

product life cycle theory

According to the _____ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.

radical

Which of the following is the prime reason why Africa has attracted FDI in recent years?

raw material availability

When a company brings capital and/or technology to a host country, the host country benefits from the:

resource-transfer effect of fdi

What is double taxation in the context of FDI?

taxation of income in both home and host country

The largest source country for FDI has been _____

the United States

According to pragmatic nationalist view, FDI should be allowed so long as

the benefits outweigh the costs

Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios?

transportation costs

According to Knickerbockers thoery

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 entitity

Which of the following is an example of a greenfield investment?

A chinese sugar maker setting up a sugar crushing facility in cuba

___ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries.

Knickerbokers theory

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