chapter 8

Question 1

Horizontal Direct Investment

Answer 1

FDI in the same industry abroad as company operates at home

Question 2

Backward vertical FDI

Answer 2

an investment in an industry abroad that provides inputs for a firm’s domestic production processes (manufacturer, wholesaler, retailer)

Question 3

Forward vertical FDI

Answer 3

an industry abroad sells the outputs of a firm’s domestic production processes (retailer, wholesaler, manufacturer)

Question 4

Eclectic Paradigm

Answer 4

The 3 conditions that must be satisfied for a firm to engage in FDI

Question 5

Company specific advantages

Answer 5

1 condition of eclectic paradigm they have to be superior to local firms

Question 6

Internalization advantages

Answer 6

one condition of Eclectic Paradigm

incentives to invest money into the market in order to control it

Question 7

Location specific advantages

Answer 7

it must be more profitable to locate abroad. Ex- tax breaks, providing subsidies along with better technology in japan so companies would locate there

Question 8

Reasons to buy

Answer 8

A company that is already established saves time, money, the company already has workers, technologies, customers and brand recognition

Question 9

Reasons to build

Answer 9

there might not be a company available to buy, government restrictions, there could be environmental, labor or legal problems which then would make the new buyers liable, financing may be easier and there could be managerial/cultural problems

Question 10

radical view

Answer 10

MNE (multi-national enterprise) is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries

Question 11

East India Company

Question 12

Union Carbide

Answer 12

chemical company that resulted in the Bhopal disaster

Question 13

Free Market view

Answer 13

International production should be distributed among countries according to the theory of comparative advantage

Question 14

Pragmatic nationalism

Answer 14

nations attempt to problem solve. Let them do business as it works

Question 15

benefits of fdi

Answer 15

inflows of capital, technology, skills and jobs

Question 16

Costs of fdi

Answer 16

repatriation of profits and a negative balance of payments effect

Question 17

Host country benefits

Answer 17

1. Resource Transfer Effects
   capital, technology, and management resources
2. Employment Effects
   FDI can bring jobs that would otherwise not be created there
3. Balance-of-Payments Effects- good bc the money comes back to te US
4. effect on competition

Question 18

Host country costs

Answer 18

Adverse Effects on Competition- The MNE could draw on funds generated elsewhere to subsidize costs in the local market, Doing so could allow the MNE to drive indigenous competitors out of the market and create a monopoly position, Local entrepreneurship might be deteriorated.

2. Adverse Effects on the Balance of Payments- Import components and equipment
3. National Sovereignty and Autonomy

Question 19

Home country benefits

Answer 19

inward flow of foreign earnings
The employment effects arise
The gains skills and technologies from foreign markets
America for American compnaies

Question 20

Home country costs

Answer 20

The balance of payments suffers from the initial capital outflow required to finance the FDI. The current account is negatively affected if the purpose of the FDI is to serve the home market from a low-cost production location
The current account suffers if the FDI is a substitute for direct exports