The Global Trade & Investment Environment (Chapter 8) Flashcards
Flow of FDI
amount of FDI undertaken over a given time period
Stock of FDI
refers to the total accumulated value of foreign-owned assets at any given time
2 Factors that have contributed to the rise in FDI
fear of protectionist pressures; rise in democracy; firms want to produce close to major customers
Greenfield Investment
the establishment of a new operation in a foreign country
Eclectic Paradigm (Dunning)
combines the two other perspectives of the pattern of FDI into a single holistic explanation
Pragmatic Nationalism
moderate view of FDI; analyzes the costs and benefits
Current Account
tracks exports and imports
Licensing
granting a foreign entity the right to produce and sell the firm’s product in return for a royalty fee
Location-Specific Advantage (Dunning)
arise from utilizing recourse endowments or assets tied to a particular foreign location
Offshore Production
FDI undertaken to serve the home market
Tax Concession
Tax incentive
Who regulates FDI
WTO
Multipoint Competition
when two or more industries encounter each other in different regional markets, national markets, or industries
Internalizations Theory/Market Imperfections Approach
seeks to explain why firms prefer FDI over licensing
What must all FDI theories explain?
Why is FDI chosen over licensing or exporting? (high transportation costs, tariffs)
Situations where licensing is not optimal
a firm has valuable know-how that may be exploited; a firm needs tight control to maximize earnings in that country
Knickerbocker’s theory
much of FDI is explained by imitative behavior in an oligopolistic industry
Dunning’s theory
firms undertake FDI to exploit resource endowments
Benefits of FDI to a Host country
resource transfer effects, employment effects, balance-of-payments effects
Costs of FDI to a Host country
adverse effects on competition and balance of payments; perceived loss of national sovereignty
Benefits of FDI to Source Country
improvement in balance of payments, positive employment effects, reverse resource transfer effect
Costs of FDI to Source Country
negative balance of payments from initial capital outflow, possible negative employment effects
