Chapter 7 Flashcards
1
Q
Flow of FDI
A
amount of FDI undertaken over a given period of time (generally 1 year)
2
Q
Stock of FDI
A
total amount of FDI accumulated at a given time.
3
Q
What are the 2 forms FDI can take?
A
1 Greenfield Investment
2. Acquisition or merger
4
Q
Greenfield Investment
A
starting up a brand new operation in a foreign country.
5
Q
Acquisition (or merger)
A
a firm acquires or merges with an existing firm in the foreign country.
6
Q
Why FDI?
A
Limitations of exports and licensing
7
Q
Limitations of Exports
A
- Transport costs
Products of low value-to-weight ratio can be produced in almost any location (e.g., cement, soft drinks).
8
Q
Limitations of Licensing
A
- Not much control
- Gives away firm secrets, technological know-how
- Internalization theory
9
Q
Radical View
A
- MNEs are tools to exploit foreign economies
- MNEs extract profits from host country to bring into home country
- Marxist political & economic theory
- MNE is an instrument of imperialist domination.
10
Q
Free Market View
A
- International production should be distributed by comparative advantage (goods that they can produce most efficiently).
11
Q
Pragmatic Nationalism
A
- many countries have adapted neither radical or free market view
- believes FDI has both benefits and costs
12
Q
Host Country Benefits
A
- Resource-transfer effects
- Creation of jobs
- Technological skill development
13
Q
Host Country Cost
A
- Adverse effects on consumption
- Adverse effects on the balance of payments
- National sovereignty and autonomy
14
Q
Home Country Costs
A
- Balance of payments from outward FDI
- Employment effect from outward FDI
