week 8 Flashcards
define MNE
a country with production plants in more than 1 country, special case of a multi plant firm
what is FDI
the flows which funds use to estabish a foreign plant
what is horizontal FDI
replication of entire production process in a foreign plant. caused by size of foreign production market plus trade cost
what is vertical FDI
fragmentation of the production process –> components produced in different countries caused by factor price differences across countries
what is greenfield FDI
when a country sets up plant in foreign country from scratch
what are mergers and acquitions
change in ownership of part of the hosts capital stock
what causes FDI flow according to the model?
FDI flows are caused by differences in countries in the return to capital –> it will continue until capital is equal across countries
what are the assumption of the model of FDI flows
2 countries North (K abundant) and south
2 factos of production
1 good produced
perfect comeptition in all market
full employment of both factoes
what is the MPK CURVE
acts as a country demand curve for capital
can be used to determine the distrbution of income between L and K
draw Noth under AUT
north: is K abundant
check
what are the results of the MPK diagram
A+b = total output A = capital income B = labour/wage income
what happens under K mobility?
K flows from K abudant country to the other country
until the return to K is equalised at R1 =R2=R
what is the defintion of GDP?
total output of a country, regardless of who recieves the income it generates
what is GNP?
total income earned by country’s population, regardless of its geographical source
when is GNP=GDP true?
for the world as a whole
but not for an individual country
