Chapter 6

Question 1

Agglomeration

Answer 1

Clustering of economic activities in certain locations.

Question 2

Bargaining power

Answer 2

Ability to extract favorable outcome from negotiations due to one party’s strengths.

Question 3

Contagion (imitation) effect

Answer 3

The reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation.

Question 4

Demonstration effect

Answer 4

The reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation.

Question 5

Dissemination risk

Answer 5

Risk associated with unauthorized diffusion of firm specific know-how.

Question 6

Downstream vertical FDI

Answer 6

A type of vertical FDI in which a firm engages in a downstream stage of the value chain in a host country.

Question 7

Expropriation

Answer 7

Government’s confiscation of foreign assets.

Question 8

FDI flow

Answer 8

The amount of FDI moving in a given period (usually a year) in a certain direction.

Question 9

FDI inflow

Answer 9

Inbound FDI moving into a country in a year.

Question 10

FDI outflow

Answer 10

Outbound FDI moving out of a country in a year.

Question 11

FDI stock

Answer 11

Total accumulation of inbound FDI in a country or outbound FDI from a country across a given period (usually several years).

Question 12

Foreign portfolio investment (FPI)

Answer 12

Investment in a portfolio of foreign securities such as stocks and bonds.

Question 13

Free market view

Answer 13

A political view that suggests that FDI unrestricted by government intervention is the best.

Question 14

Horizontal FDI

Answer 14

A type of FDI in which a firm duplicates its home countrybased activities at the same value chain stage in a host country.

Question 15

Knowledge spillover

Answer 15

Knowledge diffused from one firm to others among closely located firms.

Question 16

Internalization

Answer 16

The replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating and operating in two or more countries.

Question 17

Intrafirm trade

Answer 17

International transactions between two subsidiaries in two countries controlled by the same MNE.

Question 18

Licensing

Answer 18

Firm A’s agreement to give Firm B the rights to use A’s proprietary technology (such as a patent) or trademark (such as a corporate logo) for a royalty fee paid to A by B. This is typically done in manufacturing industries.

Question 19

Location

Answer 19

Advantages enjoyed by firms operating in a certain location.

Question 20

Management control right

Answer 20

The right to appoint key managers and establish control mechanisms.

Question 21

Market imperfection (market failure)

Answer 21

The imperfect rules governing international transactions.

Question 22

Obsolescing bargain

Answer 22

The deal struck by MNEs and host governments, which change their requirements after the initial FDI entry.

Question 23

OLI advantage

Answer 23

A firm’s quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages via FDI.

Question 24

Oligopoly

Answer 24

Industry dominated by a small number of players.

Question 25

Ownership

Answer 25

An MNE’s possession and leveraging of certain valuable, rare, hard-to imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI.

Question 26

Pragmatic nationalism

Answer 26

A political view that only approves FDI when its benefits outweigh its costs.

Question 27

Radical view

Answer 27

A political view that is hostile to FDI.

Question 28

Sovereign wealth fund (SWF)

Answer 28

A state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign
exchange assets.

Question 29

Sunk cost

Answer 29

Cost that a firm has to endure even when its investment turns out to be unsatisfactory.

Question 30

Technology spillover

Answer 30

Technology diffused from foreign firms to domestic firms.

Question 31

Upstream vertical FDI

Answer 31

A type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country.

Question 32

Vertical FDI

Answer 32

A type of FDI in which a firm moves upstream or downstream at different value chain stages in a host country.