Foreign Direct Investment Flashcards

1
Q

What is FDI?

A

An influx of capital, skills and technology which can boost economic growth, tax and jobs

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2
Q

The UK was the (1) top FDI destination in (2) our biggest FDI investments came from (3)

A

1 - EU
2 - 2015
3 - USA, India and China

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3
Q

Name the four types of FDI

A

Foreign Acquisitions
Offshoring
Transfer pricing
Foreign mergers

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4
Q

Define ‘offshoring’

A

Some TNCs build production facilities in foreign low wage economies e.g. Fender opened Mexican plant in 1987

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5
Q

Define ‘foreign mergers’

A

Two firms in different countries join forces to create a single entity e.g. Royal Dutch Shell has headquarters in both the UK and Netherlands

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6
Q

Define ‘foreign acquisitions’

A

When a TNC launches a takeover of a company in another country e.g. 2010 Cadbury was taken over by US company ‘Kraft’

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7
Q

How does the UK and USA views differ in foreign acquisitions

A

UK has few restrictions but Committee on Foreign Investment in USA closely scrutinises inbound foreign takeovers

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8
Q

Define ‘transfer pricing’

A

Some TNCs sometimes channel profits through a subsidiary company in a low tax country such as Ireland, the Organisation for Economic Cooperation and Development is attempting to limit this

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9
Q

Define FDI

A

The net transfer of funds to purchase and acquire physical capital such as factories

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10
Q

What are FDI net inflows

A

The value of inward direct investment made by non-resident investors in the reporting economy usually reported by year

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11
Q

What is inward investment stock?

A

The total accumulated level of FDI in a country

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12
Q

Name five benefits of FDI to MNCs

A
1 - lower labour costs 
2 - proximity to raw materials
3 - avoid barriers to trade 
4 - reduce transport costs 
5 - access to more domestic markets and local knowledge
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13
Q

Give five advantages of Capital Inflows

A
  • capital inflows create higher output and jobs
  • capital inflows help finance a current account deficit
  • long term capital inflows are more sustainable than short term portfolio inflows
  • recipient country benefit from knowledge and expertise of TNCs
  • abroad investment could lead to improved working conditions especially when TNCs more conscious of their public image
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14
Q

Give four potential disadvantages of FDI

A
  • MNCs controlling rides makes national gov inferior
  • FDI can bypass local environment laws
  • Doesn’t benefit recipient country due to little distribution of wealth
  • MNCs have poor working conditions and take advantage of lower wage costs
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15
Q

Give three reasons of why FDI has increased significantly in the past few decades

A
  • lower transport costs
  • increases technology increase low capital intensive start ups
  • increases global trade and lower tariff costs
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