Chap 10 FDI offshoring

Question 1

international trade

Answer 1

cross border flow of goods and services

Question 2

FDI

Answer 2

cross border flow of «abilityto produce goods and services»

Question 3

complements FDI trade

Answer 3

invest in a different country w expectation that the product gets exported again

Question 4

FDI trade substitutes

Answer 4

produce in another country to sell in its domestic market

Question 5

FDI before 1990s

Answer 5

extract natural resources and circumvent trade barriers

Question 6

After second wave of glob

Answer 6

• intrafirm trade : cross-border trade of goods and services between subsidiaries of same MNC to lower prod costs
• privatisation of large scale service sectors (telecommunications transports banking)

Question 7

perspective of developing countries after decolonialisation

Answer 7

afraid that colonial powers would buy their businesses

Question 8

what did developing countries dismantle after the second wave of globalisation (1980s present)

Answer 8

foreign ownership restrictions 

Question 9

three ways to actively court MNCs

Answer 9

1) financial incentives
2) streamlined (simpler) restrictions
3) legal protections

Question 10

bilateral investment agreement (BIT)

Answer 10

A legally binding agreement between two states that codify MNCs legal rights

Question 11

export oriented MNC

Answer 11

Country A produces in Country B to export again in country A or country C

Question 12

implications of export oriented MNC

Answer 12

• rise of trade fdi complementarities

- internalisation of global prod networks within MNCs

Question 13

rise of trade fdi complementarities

Answer 13

when different parts of the global production process are located in different countries

Question 14

internalisation of global production networks within MNCs

Answer 14

instead of contracting out a part of the production to a local firm, the MNC directly takes over

Question 15

Two types of FDI

Answer 15

exported oriented fdi and market oriented fdi

Question 16

why countries court export oriented fdi

Answer 16

creates jobs and tech transfers without increasing domestic competition since it’s exported again in other countries
+ workers who have the skills demanded by MNCs benefit from that and therefore support it

Question 17

market oriented fdi

Answer 17

country A produces in country B to sell in country B

Question 18

implications of market oriented fdi

Answer 18

introduce competition for local producers

Question 19

what does influence a MNC choice of location when market oriented fdi

Answer 19

influenced by stable country characteristics such as market size. if market sufficiently attractive then can put up with more stringent burdens (taxes, regulations)

Question 20

difference between export oriented and market oriented fdi in terms of location choice for MNC

Answer 20

Market oriented: can put up w stringent burdens if market sufficiently attractive
Export oriented: less tolerant of poor investments climates

So more bargaining power for governments in the case of market oriented fdi

Question 21

political risks of FDI

Answer 21

• host policy makers tendency to expropriate from MNCs through taxation, regulatory burdens or in the most extreme cases, nationalisation of MNCs assets
• other types : civil war, regime change etc

Question 22

time inconsistency

Answer 22

i already know now that later i’ll change my mind

Question 23

solutions to time inconsistency

Answer 23

• pre-commitment
• third party enforcement
• reputation
• moral values
  ➳ BIT

Question 24

BIT

Answer 24

• pre commit w source country
• direct penalties
• indirect reputational cost

Question 25

downsides of BIT and arbitration

Answer 25

• proliferation of investment disputes
• judgments that favor interests
• moving down to each income category, increase of 10% probability of arbitration ruling in favor of investors
• MNCs exploit rules of weaker governments

Question 26

democracies dilemma

Answer 26

• democratic regimes provide better property rights protection
•  but more electoral pressures to expropriate from MNCs to support redistribution to voters

Question 27

autocracies and fdi

Answer 27

• weaker property rights protection because nobody can really contradict a dictator
  - but also greater autonomy to use power to cater to MNCs

so can both please or impose restrictions because no accountability and have full pw. can attract MNCs if tell them they will have monopoly, and if anyone complains just put him in jail 

Question 28

Kerner’s provocative statement

Answer 28

• political science does not care about FDI per se, should study MNCs instead of FDI
• commonly used measures of FDI flows and stocks just very imperfect proxies for politically relevant aspects of multinational investment. maybe low flows but thousands of employees
• studying all kinds of FDI tgt is misleading bcz have different implications (market/export/resources oriented)