The Global Trade & Investment Environment (Chapter 8)

Question 1

Flow of FDI

Answer 1

amount of FDI undertaken over a given time period

Question 2

Stock of FDI

Answer 2

refers to the total accumulated value of foreign-owned assets at any given time

Question 3

2 Factors that have contributed to the rise in FDI

Answer 3

fear of protectionist pressures; rise in democracy; firms want to produce close to major customers

Question 4

Greenfield Investment

Answer 4

the establishment of a new operation in a foreign country

Question 5

Eclectic Paradigm (Dunning)

Answer 5

combines the two other perspectives of the pattern of FDI into a single holistic explanation

Question 6

Pragmatic Nationalism

Answer 6

moderate view of FDI; analyzes the costs and benefits

Question 7

Current Account

Answer 7

tracks exports and imports

Question 8

Licensing

Answer 8

granting a foreign entity the right to produce and sell the firm’s product in return for a royalty fee

Question 9

Location-Specific Advantage (Dunning)

Answer 9

arise from utilizing recourse endowments or assets tied to a particular foreign location

Question 10

Offshore Production

Answer 10

FDI undertaken to serve the home market

Question 11

Tax Concession

Answer 11

Tax incentive

Question 12

Who regulates FDI

Answer 12

WTO

Question 13

Multipoint Competition

Answer 13

when two or more industries encounter each other in different regional markets, national markets, or industries

Question 14

Internalizations Theory/Market Imperfections Approach

Answer 14

seeks to explain why firms prefer FDI over licensing

Question 15

What must all FDI theories explain?

Answer 15

Why is FDI chosen over licensing or exporting? (high transportation costs, tariffs)

Question 16

Situations where licensing is not optimal

Answer 16

a firm has valuable know-how that may be exploited; a firm needs tight control to maximize earnings in that country

Question 17

Knickerbocker’s theory

Answer 17

much of FDI is explained by imitative behavior in an oligopolistic industry

Question 18

Dunning’s theory

Answer 18

firms undertake FDI to exploit resource endowments

Question 19

Benefits of FDI to a Host country

Answer 19

resource transfer effects, employment effects, balance-of-payments effects

Question 20

Costs of FDI to a Host country

Answer 20

adverse effects on competition and balance of payments; perceived loss of national sovereignty

Question 21

Benefits of FDI to Source Country

Answer 21

improvement in balance of payments, positive employment effects, reverse resource transfer effect

Question 22

Costs of FDI to Source Country

Answer 22

negative balance of payments from initial capital outflow, possible negative employment effects