Chapter 8: Foreign Direct Investment

What is Foreign direct investment?

• This is when a country makes an investment into a company.
• When a domestic country invest into its own companies.
• This is when a company makes an investment into a foreign country and has the right to control.
• When a foreign individual invest in domestic stock markets

The establishment of a wholly new operation in a foreign country is called:

• An acquisition
• A greenfield investment
• A merger
• A multinational venture

What does the Gross Fixed Capital Formation describe?

• Comparison of the inflows and outflows of FDI
• Summarization of the total amount invested in other nations
• Summarization of the total amount invested in facilities (such as factories, stores, buildings, etc…)
• Differentiation between the flow and the stock of FDI

Which of the following is not a cost of outward FDI for host countries?

• The effect on employment is FDI is a substitute for domestic production
• The initial capital outflow required to finance the FDI
• When FDI is a substitute for direct exports
• Gains from learning valuable skills from foreign markets

What are the benefits of FDI to host countries?

• Repatriated earnings from profits from FDI
• Increased exports of components and services to host countries
• Learning via FDI from operations abroad
• Access to management expertise, skills and technology

Identify the theory that seeks to explain why firms often prefer FDI over licensing as a strategy for entering foreign market

• Internationalization theory
• Dunning’s theory
• Raymond Vernon’s theory
• Knickerbocker’s theory

Choose the wrong answer: "The free market view argues that"

• FDI by the MNE increases the overall efficiency of the world economy.
• The multinational enterprise (MNE) is an instrument of imperialist domination
• International production should be distributed among countries according to the theory of comparative advantage
• the MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe

Radical writers argue that :

• MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange
• The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe
• International production should be distributed among countries according to the theory of comparative advantage
• FDI by the MNE increases the overall efficiency of the world economy

What is the most important concerns of home country costs?

• The balance of payments.
• Adverse Effects on Competition
• Resource – Transfer Effects
• Effect on Economic Growth

Direct foreign investment into Vietnam represents a ____.

• capital inflow
• capital outflow
• trade inflow
• trade outflow