Chapter 6 Flashcards
Agglomeration
Clustering of economic activities in certain locations.
Bargaining power
Ability to extract favorable outcome from negotiations due to one party’s strengths.
Contagion (imitation) effect
The reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation.
Demonstration effect
The reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation.
Dissemination risk
Risk associated with unauthorized diffusion of firm specific know-how.
Downstream vertical FDI
A type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country.
Expropriation
Government’s confiscation of foreign assets.
FDI flow
The amount of FDI moving in a given period (usually a year) in a certain direction.
FDI inflow
Inbound FDI moving into a country in a year.
FDI outflow
Outbound FDI moving out of a country in a year.
FDI stock
Total accumulation of inbound FDI in a country or outbound FDI from a country across a given period (usually several years).
Foreign portfolio investment (FPI)
Investment in a portfolio of foreign securities such as stocks and bonds.
Free market view
A political view that suggests that FDI unrestricted by government intervention is the best.
Horizontal FDI
A type of FDI in which a firm duplicates its home countrybased activities at the same value chain stage in a host country.
Knowledge spillover
Knowledge diffused from one firm to others among closely located firms.
Internalization
The replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating and operating in two or more countries.
Intrafirm trade
International transactions between two subsidiaries in two countries controlled by the same MNE.
Licensing
Firm A’s agreement to give Firm B the rights to use A’s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B. This is typically done in manufacturing industries.
Location
Advantages enjoyed by firms operating in a certain location.
Management control right
The right to appoint key managers and establish control mechanisms.
Market imperfection (market failure)
The imperfect rules governing international transactions.
Obsolescing bargain
The deal struck by MNEs and host governments, which change their requirements after the initial FDI entry.
OLI advantage
A firm’s quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages via FDI.
Oligopoly
Industry dominated by a small number of players.
Ownership
An MNE’s possession and leveraging of certain valuable, rare, hard-to imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI.
Pragmatic nationalism
A political view that only approves FDI when its benefits outweigh its costs.
Radical view
A political view that is hostile to FDI.
Sovereign wealth fund (SWF)
A state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign
exchange assets.
Sunk cost
Cost that a firm has to endure even when its investment turns out to be unsatisfactory.
Technology spillover
Technology diffused from foreign firms to domestic firms.
Upstream vertical FDI
A type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country.
Vertical FDI
A type of FDI in which a firm moves upstream or downstream at different value chain stages in a host country.
